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LEGAL  WORKS    BY   LEONARD  A.  JONES. 


A  Treatise  on  the  Law  of  Mortgages  of  Real  Property.  Third 
l-ldition,  Revised  and  Enlarged,  Two  volumes,  8vo,  860  pages  each.  Price 
$13.00. 

A  Treatise  on  the  Law  of  Railroad  and  other  Corporate  Se- 
curities, including  Municipal  Aid  Bonds.  One  volume,  Svo,  750  pages. 
Price  56.50. 

A  Treatise  on  the  Law  of  Mortgages  of  Personal  Property. 

Second  Edition,  Revised  and  Enlarged.  One  volume,  Svo,  750  pages.  Price 
$6.50. 

A  Treatise  on  the  Law  of  Pledges,  including  Collateral  Se- 
curities.    One  volume,  Svo.     Price  $6.50. 

A  Treatise  on  the  Law  of  Liens,  at  Common  Law  and  by 

Statute.     One  volume,  Svo.     (In  Preparation.) 

These  works,  treating  of  the  three  forms  of  securit}'  upon  property,  —  Mort- 
gages, Pledges,  and  Liens,  —  while  separately  complete,  have  been  prepared 
with  a  view  to  the  relations  of  the  subjects  to  each  other;  and  each  treatise  con- 
tains references  to  the  others,  so  that  all  together  constitute  one  work  upon  the 
subject  of  Property  Securities. 

*»*  For  sale  by  Law  Booksellers.  Sent,  post-paid,  on  receipt  of  price  by  the 
Publishers,  HOUGHTON,  MIFFLIN   &   CO.,  Bostox. 


A  TREATISE 


LAW   OF   PLEDGES, 


INCLUDING 


COLLATERAL  SECURITIES. 


LEONARD  A.  JONES, 

AUTHOR   OF  TREATISES    O.V  "  MORTGf AGES  OF  REAL  PROPERTY,"  "RAILROAD 
SECURITIES,"'   AND    "CHATTEL    MORTGAGES." 


BOSTON: 
HOUGHTON,  MIFFLIN  AND   COMPANY. 

New  York:   11    East  Seventeenth  Street. 
C()c  HtticrfiiUc  IprcoB,  Cnmbittiirc. 

1883. 


r 
jnotp 


Copyright,  1883, 
By  LEONARD  A.  JONES. 

All  rights  reserved. 


The  Riverside  Press,  Cambridge  : 
I'rinteU  by  II.  0.  Iloughton  and  Company. 


PREFACE. 


The  present  work  is  not  upon  a  new  subject ;  but  it 
treats,  for  the  most  part,  of  new  phases  of  an  old  subject. 
The  general  principles  of  the  Law  of  Pledges,  first  system- 
atically stated  very  briefly  by  Lord  Chief  Justice  Holt, 
and  afterwards  restated  more  fully  by  Sir  William  Jones, 
have  in  recent  times  been  more  elaborately  expounded  in 
the  treatises  of  Judge  Story  and  Mr.  Schouler :  but  all 
these  writers  have  treated  the  subject  only  as  one  topic 
of  the  general  branch  of  the  law,  known  as  Bailments. 
Moreover,  these  principles  were  formulated  with  refer- 
ence to  Pledges  of  tangible  personal  chattels  ;  and  to  such 
transactions  they  were  applied  exclusively,  until,  in  re- 
cent times,  the  business  of  the  commercial  world  came  to 
be  conducted  largely  by  the  use  of  paper  representatives 
of  credits  and  values,  and  paper  symbols  of  property. 

During  the  last  half  century  the  Law  of  Pledges  has 
assumed  a  new  importance  from  its  adaptation  to  such 
transactions  as  loans  upon  negotiable  paper,  upon  shares 
and  bonds  of  corporations,  upon  bills  of  lading  of  railroad 
companies  and  other  common  carriers,  and  upon  ware- 
house receipts.  But  even  so  recent  a  writer  as  Judge 
Story  found  it  possible  to  dismiss  in  three  lines  the  mat- 
ter of  pledges  of  corporate  stocks. 


V 


PREFACE. 

The  present  work  has  been  written  chiefly  with  the 
view  of  statinoj  and  discussinu;  the  Law  of  Pled<jces  in  its 
appUcation  to  incorporeal  personalty.  To  pledges  of 
such  property  the  term  "  Collateral  Securities  "  has  in 
recent  years  been  quite  generally  applied,  both  by  busi- 
ness men  and  by  lawyers.  The  giving  and  taking  of 
such  securities  by  bankers,  brokers,  and  merchants,  is 
now  an  important  element  in  the  business  transactions 
of  every  day  in  all  the  centres  of  trade  and  commerce. 
Accordingly  the  several  topics,  of  Pledges  of  Negotiable 
Paper,  of  Non-negotiable  Choses  in  Action,  of  Corporate 
Stocks,  of  Bills  of  Lading,  and  of  Warehouse  Receipts, 
have  been  treated  separately,  and  with  such  fulness  of 
statement  and  illustration  as  the  importance  of  these 
topics  seems  to  demand.  Thus,  two  chapters,  having 
together  nearly  a  hundred  pages,  are  devoted  to  the 
consideration  of  Pledges  of  Negotiable  Paper ;  and  three 
chapters,  with  about  a  hundred  and  fifty  pages,  are  de- 
voted to  the  consideration  of  Pledges  of  Corporate 
Stocks, 

AVhile  I  have  taken  much  pains  to  collect  the  decisions 
upon  the  subjects  treated  of,  and  have  sought  for  them 
under  numerous  titles  in  the  digests  and  reports,  I  cannot 
hope  to  have  gathered  everything  of  value.  I  can  only 
hope  that  I  have  not  made  serious  omissions. 

L.  A.  J. 

Boston,  October  1,  1883. 
33  Holers  Buildino;. 


VI 


CONTENTS. 


CHAPTER  L 

THE   NATURE   OF   A  PLEDGE. 


I.   The  contract  defined        .... 
II.   Distinguished  from  a  chattel  mortgage 
HI.   Delivery  is  essential  to  create  a  pledge     . 
IV.  Possession  is  essential  to  continue  a  pledge 


SECTIONS 

1-3 

4-22 

23-39 

40-48 


CHAPTER   II. 

OF    THE    SUBJECT    MATTER    AND    THE    PARTIES. 

I.   The  subject  matter  in  general 49-51 

II.    The  title  of  the  pledgor 52-65 

III.  Pledges  by  married  women 6-68 

IV.  Pledges  by  partners 69 

V.   Pledges  by  corporations 70-74 

VI.   Pledges  to  corporations 75-79 


CHAPTER  HI. 

PLEDGES   OF   NEGOTIABLE    PAPER. 


I.  Delivery  and  possession 
II.    Bond  fide  holder  for  value 
III.   Collateral  for  a  preexisting  debt 


80-88 

89-106 

107-133 


CHAPTER   IV. 

PLEDGES    OF   NON-NEGOTIABLE    CHOSES     IN    ACTION. 

I.   The  effect  of  such  pledges 134-136 

II.    Pledges  of  mortgages 137-144 

III.  Pled;,'es  of  policies  of  insurance    ......  145-147 

IV.  Pledges  of  savings  bank  books 148 

V.    Pledges  of  judgments 149 

VI.    Pledges  of  land  certificates 160 

vii 


CONTENTS. 


CHAPTER  V. 

PLEDGES   OF    CORPOKATE    STOCKS. 

SECTIOXS 

I.    Corporate  stocks  a  proper  subject  of  pledge       .                  .  151-154 

II.   Parol  evidence  to  show  an  absolute  transfer  to  be  a  pledge   .  155-157 

III.  What  constitutes  an  effectual  transfer  of  stock  at  common 

law 158-162 

IV.  Transfers  in  blank 163-167 

V.    Transfer  by  delivery  of  ccnilicate  as  between  the  parties  168-171 

VI.    Such  transfers  as  between  the  parties  and  the  corporation     .  172-176 

VII.   Such  transfers  as  between  the  parties  and  their  creditors  .  177-220 

VIII.   Liens  upon  stock  in  favor  of  the  corporation           .        .         .  221-226 


CHAPTER  VI. 


PLEDGES   OF    BILLS    OF    LADING. 

I.  Bills  of  lading  are  symbols  of  property        ....  227-232 

II.    How  far  negotiable  instruments 233-244 

III.  How  far  binding  upon  the  carrier 245-254 

IV.  Whether  security  for  acceptance  or  payment  .         .         .  255-260 
V.    How  bills  of  lading  may  be  pledged 261-265 

VI.  A  pledgee's  rights  as  against  the  consignor    ....  266,267 

VII.  A  pledgee's  rights  as  against  the  consignee        .         .         .  268-272 

VIII.  A  pledgee's  rights  as  against  the  carrier         ....  273-277 
IX.  Rights  of  pledgees  of  different  parts  of  the  same  bill  of  lading  278,  279 


CHAPTER   VII. 

PLEDGES    OF    WAREHOUSE    RECEIPTS. 

I.  How  far  warehouse  receipts  are  negotiable  ....  280-297 

II.  How  they  may  be  transferred  in  pledge  .....  298-302 

III.  Rights  of  a  Jond /Je  pledgee 303-313 

IV.  The  warehouseman  must  have  the  goods  in  store  before  issuing 

a  receipt 314-320 

V.    The  owner  of  goods  cannot  give  a  valid  receipt  for  them  as 

warehouseman        ........         321-326 


CHAPTER  VIII. 

PLEDGES    BY   FACTORS. 

I.    Pledges  by  factors  at  common  law 
II.    Pledges  by  factors  under  the  factors'  acts 
viii 


327-332 
333-353 


CONTENTS. 


CHAPTER   IX. 

THE   DEBT   SECURED 


SECTIONS 

354-363 


CHAPTER  X. 

THE   pledgor's   RIGHTS   AND   LIABILITIES   BEFORE    DEFAULT. 


T.    Riiiht  to  sell  or  assign  his  interest 
11.    Liability  of  his  interest  to  attachment  and  execution 


364-371 

372-392 


CHAPTER  XL 

THE   pledgee's   RIGHTS   AND    LIABILITIES    BEFORE   DEFAULT. 


I.   His  right  to  the  use  and  profits  of  the  thing  pledged 
IL    His  duty  to  care  for  the  thing  pledged 
IH.    His  right  to  assign  the  pledge        .... 
IV.   His  right  of  action  for  a  conversion  of  the  pledge     . 


393-402 
403-417 
418-428 
429-436 


CHAPTER   XIL 

RIGHTS   AND   LIABILITIES    OF   A   PLEDGEE    OF   STOCK. 

I.   His  rights  and  liabilities  as  a  Stockholder      ....  437-460 

II.    His  rights  acquired  in  good  faith  from  the  apparent  owner       .  461-473 

III.  His  rights  when  dealing  with  one  holding  a  fiduciary  relation  474-494 

IV.  His  rights  as  broker  carrying  stock  upon  margin  .         .         .  495-500 
V.    His  right  to  use  and  hypothecate  pledged  stock        .        .        .  501-512 


CHAPTER  XHL 

THE   RIGHTS   OF    A   SURETY. 

I.    His  right  of  subrogation  to  the  creditor's  securities 
II.    The  creditor's  equitable  right  to  the  surety's  securities     . 
HI.   The  mutual  equity  of  co-sureties  to  claim  the  benefit  of  each 


other's  securities 


513-522 
523-533 


534-539 


CHAPTER  XIV. 


PAYMENT   AND     REDEMPTION. 


I.  Effect  of  payment  or  tender  of  payment 

II.  Application  of  payments 

III.  Redemption  in  ecjuity  and  at  law 

IV.  Action  for  converMioii  by  the  pledgee     . 
V.  Statute  of  limitations 


640-547 
548-551 
552-560 
561-580 
581-583 


IX 


CONTENTS. 


CHAPTER  XV. 

SECTIONS 
BANKRUPTCY   AND  INSOLVENCY  .  .  584-588 


CHAPTER  XVI. 

REMEDIES   OP   THE   PLEDGKE   AFTER    DEFAULT. 

I.  Suit  upon  the  debt 589-598 

n.  Attachment  of  the  pledged  property 599-601 

in.  Sale  of  the  pledge  at  common  law 602-615 

IV.  Statutory   provisions   regulating   sales   of   property    held    in 

pledge       616-630 

V.    Sales  under  powers  of  sale       .......  631-639 

VI.    Sales  under  proceedings  in  equity        .....  640-648 

VII.    Surplus  proceeds  of  sale 649,  650 

CHAPTER  XVII. 

REMEDIES   UPON   PLEDGES    OF   NEGOTIABLE   PAPER. 

I.    Collateral  paper  cannot  be  enforced  by  sale  except  by  special 

power        .......         i         .         .  651-663 

II.    Suits  upon  collateral  paper 664-680 

III.  Enforcing  principal  debt        .         .         .       ■  .         .         .         .  681-686 

IV.  Negotiable  paper  taken  in  payment 687-691 

V.  Diligence  in  collecting  collateral  paper         ....  692-719 

CHAPTER  XVIII. 

REMEDIES    UPON    PLEDGES    OF    STOCKS. 

I.    Sale  at  common  law 720-729 

II.    Sale  under  powers  of  sale      .......  730-740 

in.   Illegal  sales  by  the  pledgee 741-749 

IV.   The  measure  of  damages  for  an  illegal  sale  of  stock  collaterals  750-757 
X 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Abbett  V.  Frederick  404,  409 

Abbott  V.  Reeves  485 

Abercrombie  v.  Mosely  681 

Abrahams  v.  South  Western   R. 

R.  Bank  562 

Adams  i;.  Merchants'  Nat.  Bank   287, 

325,  326 
V.  O'Connor  277,  433 

V.  Sturges  356 

Adderly  v.  Storm  437 

Adoue  I'.  Seeligson  229,  246,  253 

Agawam  Bank  v.  Strever  122 

Aofiiew  V.  Johnson  54 

Ainsworth  v.  Bowen  150,  574 

Albert  v.  Savings  Bank  of  Bahi- 

more  480,  485 

Alderman  v.  Eastern  R.  R.  Co.     255, 

273 

Aldrich  v.  Goodell  702 

V.  Ilapfjood  534 

Alexander  v.  Alexander  685 

V.  Springfield  Bank       1 1 5, 

117 

Allaire  v.  Hartshome  111,  675 

Allen  V.  Clark  681 

V.  Dallas  &  Wichita  R.  R. 

Co.  668 

V.  Dykers      151,  508,  509,  510, 

730,  755 

V.  IVfeeguire  355,  356 

V.  Williams    233,  260,  261,  262, 

209 

American  R.mk  v.  Baker  515 

American   Kxcli.  Bank  u.  Corliss   117 

American    Railway-Frog   Co.  v. 

Haven  441 

Amory  v.  Francis  588 

AmoH  v.  Sinnott  570 

Anderson    v.    Pliila.    Warehouse 

Co.  439 


Andrews  v.  Marrett 
Andi-oscoggin   R.  R 

burn  Bank 
Anonymous 
Apperson  v.  Wilbourn 
Appleton  V.  Donaldson 

V.  Parker 
Arbouin  v,  Anderson 
Archer  v.  Williams 
Archibald  v.  Argall 
Arendale  v.  Morgan 

Arent  v^  Squire 
Armour  v.  McMichael 


Arnold 


681 
Co.  V.  Au- 

399,  721 
104 
538 
124,  542, 
547 
581 
104 
753 
590 
5,  55,  56,  599, 
640 
409 
111 

V.  Michigan  Cent.  R.  R.  246, 
252 
V.    Rock    River  Valley- 


Union  R.  R.  Co.       '    103 

V.  Suffolk  753 

Ash  V.  Savage  24 

Ashton's  Appeal      117,  124,  418,  469 

Ashton  V.  Atlantic  Bank         474,  485 

Atchison  v.  Davidson  115 

Atkins  V.  Gamble  461,  508 

Atkinson  v.  Atkinson  479,  490 

V.  Brooks        111,  113,  116, 

132 

V.  Maling  37 

Atlantic  F.  &  M.  Ins.  Co.  v.  Boies 

144,  651,687 
Atlantic  Nat.  Bank  of  N.  Y.  v. 
Franklin 


At  water  v.  Mower 
Auwe  L\  Variol 
Aull  V.  Colket  46 

Aultman's  Appeal 
Austin  V.  Curtis 

V.  Dye 
Ayers  v.  South  Australian  Bank- 
ing Co.  SO 
Ay  res  v.  Leypoldt                              115 

xl 


129 

13 

5,  3X0 

461,466 

437 

113,  132 

853 


TABLE   OF   CASES. 


Reference  is  to  Sectious. 


B. 


Babcock  v.  Jordan  111 

V.  Lawson  304,  305 

Bacon  v.  Lamb  540 

Badlam  v.  Tucker  372,  373 

Babia  &  San  Fi-ancisco  Ry.  Co. 

in  re  461 

Bailey  v.  Colby  418,  422 

V.  Godfrey  576 

Baines  v.  Swainson  348 

'  Baker  v.  Arnot  371 

r.  Briggs  515,  520 

V.  Drake  495,  496,  578,  736,  756 

V.  Woolston  444 

Bakewell  v.  Ellsworth  387 

•Baldwin  v.  Bradley         355,  356,  433, 

553,  576 

V.  Canfield  78,  168,  198 

Ball  V.  Stanley  355,  542,  543 

Ballard  v.  Burgett  94,  353 

Baltimore   &  Ohio  R.  R.  Co.   v. 

Trimble  523 

Baltimore  &  Ohio  R.   R.   Co.  v. 

Wilkins  235,  241,  246 

Baltimore  City  Passenger  Ry.  Co. 

!;.  Sewell  168,  750,  751 

Baltimore  Mar.  Ins.  Co.   v.  Dal- 
rymple         418,  561,  578,  5J9,  635, 
731,  732,  737,  740,  750 
Banco  de  Lima  v.  Anglo- Peruvian 

Bank  269 

Bange  v.  Flint  115 

Bangs  V.  Moslier  681 

Bank  v.  Boisseau  525 

V.  Carrington  114,  115 

V.  Lanier         79,  168,  176,  221, 

224,  466 

V.  Railroad  Co.  635 

V.  Woodruff  590 

Bank  of  Alexandria  v.  Herbert      585 

Bank  of  America  v.  McNeil  168. 171, 

179,  210,  221,  223 

Bank  of  Attica  v.  Manufacturers' 

Bank  162 

Bank  of  British  Columbia  v.  Mar- 
shall 10,  14,  406,  595 
Bank  of  Charleston  v.  Chambers  1 1 1 
Bank  of  Commerce's  Appeal  1 73,  209 
Bank  of  England  v.  Newman  688 
Bank  of  Kentucky  v.  Schuylkill 

Bank  461 

Bank  of  Lafayette  v.  Bruff  669 

Bank  of  Metropolis  v.  N.  E.  Bank  107 
Bank  of  Montgomery  v.  Reese        755 
Bank  of  New   York   v.   Vander- 
horst  89,  122,  127 

xii 


Bank   of    the    Old    Dominion    v. 

Dubuque  &  Pacific  R.  R.  Co.       740 
Bank  of  Republic  v.  Carrington    111, 

116 
Bank  of  Rochester  v.  Jones  229,  2G2, 

268 
Bank  of  Rutland  v.  Buck  1 22 

V.  Woodruff  681 
Bank  of  St.  Albans  r.  Gilliland  115 
Bank  of  Sandusky  v.  Scoviile  115 
Bank  of  the  United  States  v.  Pea- 
body  596,  692,  707,  711 
Bank  of  Utica  v.  Ives  130 
V.  Smalley  206 
Barber  v.  Meyerstein      228,  229,  266, 

278 
Bardsley  v.  Delp  115 

Barfield  v.  Cole  7,  18 

Baring  v.  Corrie  329 

Barker,  ex  parte  441,  442 

Barnard  v.  Campbell       233,  309,  341, 

349,  353 
Barr  v.  Kane  663 

Barre   Nat.    Bank   v.    Hingham 

Manuf.  Co.  450 

Barrett  v.  Cole  6,  40 

Barrow  v.  Paxton  5,  7,  18,  24 

V.  Rhinelander  692,  716 

Bartlett  ih  Johnson  558 

Bast  v.  First  Nat.  Bank  of  Ash- 
land 667,  710 
Bates  V.  Stanton  568 
V.  Wiles                     7,  730,  755 
Baugh  V.  Kirkpatrick  388 
Bay  v.  Coddington  107 
V.  Gunn                                        664 
Bayard  v.  Farmers'  &  Mechanics' 

Bank         479,481,482,484 
V.  Shunk  688,  691 

Beale  v.  Bank  693,  713 

Bealle  v.  Southern  Bank  of  Ga.        89 
Beatty  v.  Sylvester  555,  557 

Becher  v.   Wells  Flouring   Mills 

Co.  172,  175,  441 

Becker  v.  Hallgarten  2G2,  266 

V.  Sandusky  City  Bank      117, 

125 

Beckwith  v.  Burrough  168,  210 

V.  Sibley  590 

Beeman  v.  Lawton  23,  27 

Beers  v.  Culver  117 

Belden  v.  Perkins  418,  422,  576,  577, 

610,  611 

Bell  V.  Bell  89 

V.  Lafferty  398 

Belmont  Branch  Bank  v.  Hoge       89, 

l04,  127 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Belshaw  v.  Bush  115 

Bement  v.  Smith  722 

Benjamin  v.  Stremple  433 

Benny  r.  Pegram  327 

V.  Rhodes  327 

Benoir  v,  Paquin  104 

Bentall  v.  Burn  300 

Bertifh  v.  Marye  464 

Berlin  v.  Eddy  609 

Bertrand  v.  Barkman  117 

Best  V.  Crall  89 

Betterton  v.  Roope  694 

Bevan  v.  Cullea  743 

Bibb  V.  Martin  525,  530 

Bickell  V.  Colton  750 

Bicknell  v.  Waterman  688 

Biddle  V.  Bayard  461,  465 

V.  Bond  52,  568 

Biebinger  v.  Continental  Bank  86,  540 
Bigelow,  in  re  221 

Bigelow  V.  Walker  595 

V.  Young  542 

Bissell  V.  Steel  262,  265 

Black  V.  Bogert  44,  430 

V.  Zaubarie    171,  179,  193,  210 
Blackwood  v.  Brown  393 

Blair  v.  Childs  331 

Blake  v.  Buchanan  94 

Blanchard  v.  Page  242 

V.  Stevens  111,  113 

Blodgett  r.  Blodgett  15 

Blood  V.  Hayman  635 

Blouin  V.  Hart  193,  210,  692 

Blydenburgh  v.  Thayer  665 

Board  of  Commissioners  v.  Rey- 
nolds 159 
Boardman  v.  Holmes  362 
V.  Spooner  300 
Boatman's  Saving  Inst.  v.  Holland  111 
Boatmen's  Ins.  Co.  v.  Able  174 
Bodenhammer  v.  Newsom  40, 44,  4  7,  88 

117,  129 

69 

360 

89 

111 

89 

11,  23 

692 

402 

111 


Body  V.  Jewsen 
Bobler  i;.  Tappan 
Bolland  V.  Bygrave 
Bonaud  v.  Genesi 
Bond  V.  Central  Bank 

V.  Wiltse 
Bonsey  v.  Amee 
Bonta  V.  Curry 
Booily  V.  Guddard 
BuwaiKiutt  V.  Dudman 
Boston  Music  Hall  Asso.  v.  Cory  IGO, 

196 
Bostwick  V.  Dodge  1 1 1 

Butt  r.  McCoy  327,  329,  330 

Boiighton  V.  United  States  356 

Bowditcb  V.  Green  538 


Bowman  t'.  IMillison  111 

V.  Van  Kuren  117 

V.  Wood  669 

Boyd  r.  Beck  117 

V.  Cummings  122,  127 

V.  Parker  526 

Boylan  v.  Huguet  509,  750 

Boynton  v.  Payrow   37,  148,  640,  662 

V.  Woodbury  156 

Boyson  v.  Coles  342,  344 

Bradford  v.  Arnold  692 

Bradley  v.  Parks  422 

Bragg  V.  Meyer  329 

Braiuard  v,  Reavis  111 

Bramball  v.  Beckett  117,  122 

Brand,  in  re  588 

Brandao  v.  Barnett  96,  163,  357 

Brass  v.  Worth  495,  738,  756 

Breckinridge  y.  Moore  117 

Breech  v.  Cook  688 

Breedlove  v.  Stump  523 

Brewster  v.  Hartley         153,  442,  480 

V.  Sime  183,  466,  480 

Brick  V.  Brick  155 

V.  Freehold   Nat.   Banking 

Co.  519,  686 

Bridgeport  Bank  v.  N.  Y.  &  N.  H. 

R.  R.  Co.  163,  461,  466 

Bridgeport  City  Bank  v.  Welch      111 

Briggs  V.  Oliver  640 

V.  Rice  141 

V.  Walker  372 

Bright  V.  Judson  115 

V.  Wagle  15,  20 

Brightman  v.  Reeves        603,  652,  654 

Brinkerhoff  v.  Marvin  679 

Broadway  Bank  v.  McElrath         204, 

210,  463 

Broadwell  v.  Howard  280,  297 

Bronston  v.  Robinson  523 

Brooklyn  Bank  v.  De  Grauw  545 

Brookman  v.  Metcalf  89,  651 

Brooks  V.  Whitson  117 

V.  Wright  681 

Brother  v.  Saul  640 

Brown  v.  Adams  196 

V.  Jicmuut  7,  18,  602 

V.  Iliatt  687,  707 

V.  Leavitt  115,  127 

V.  M'Grau  331,  351 

V.  Powell   Duffryn    Steam 

Coal  Co.  246 

V.  Ray  532,  534 

V.  Ruiials  559 

i;.  Tyler  660 

V.  Ward       610,  651,  721,  727, 
738 

xiii 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Brown  v.  Warren  25,  34,  36 

Brownell  v.  Hawkins         7,  8,  23,  429, 

602 
Bruce  v.  Smith  171 

Bruley  v.  Rose  41,  44 

Brush  V.  Scribner  111 

Bryan  v.  Baldwin  571,  610,  612,  637, 

756 
Bryans  v.  Nix  280 

Bryon  v.  Carter  221 

Bryson  v.  Rayner     558,  731,  732,  740 
Buchanan  v.  International  Bank     89, 
106,  358,  361 
Buck  V.  IngersoU  599 

Buckingham  v.  Payne  692,  700 

Budd  V.  Munroe  474 

Buffington  v.  Curtis  261 

Bubrman  v,  Baylis  115 

Bulkeley  v.  Welch  418 

Bullard  v.  Bank  79,  224 

V.  Billings  418 

Burdick  v.  Sewell  231 

Burford  v.  Crandell  221 

Burgess  v.  Chapin  691 

V.  Seligman       155,  445,  451, 
'  457,  458,  459 

Burke  v.  Cruger  130 

Burlingame  v.  Parce  657 

Burlington     Gas     Light    Co.    v. 

Greene  687 

Burnett  v.  Thompson  715 

Burnheimer  v.  Hart  684 

Burrows  v.  Bangs  690 

Bui-t  V.  Horner  706 

Burton's  Appeal  466 

Burton  v.  Curyea  280,  281,  303 

V.  Peterson  461,  4G7 

Bush  V.  Lathrop  135 

V.  Lyon  364,  418 

V.  Peckard  111 

Butler  V.  Haight  687 

Butters  v.  Haughwout  111,  116 

Butterworth  v.  Kennedy  590 

Butts  V.  Burnett  566,  571,  573 


Caffin  V.  Kirwan  27,  139 
Calkins  v.  Lockwood  361,  418 
Calvo  V.  Davies  681 
Cameron  v.  Marvin  12 
Camp's  Appeal  148 
Campbell  v.  Parker  137,  561 
V.  Reeves  327 
Canfield  v.  Minneapolis  Agricul- 
tural &  Mechanical  Asso.  637,721 

xiv 


Canfield  v.  State   Nat.  Bank  of 

Minneapolis  414 

Capron  v.  Thompson  742 

Cardin  v.  Jones  692,  700 

Carlisle  r.  Hill  131 

V.  Wishart  116 

Carlyon  v.  Lannan  750 

Carpenter  v.  Bowen  525 

V.  King  518,  520 

V.  Longan  105 

V.  Providence     Wash- 
ington Ins.  Co.       109 
Carrington  v.  Ward  367 

Carroll     v.    Mullanphy     Savings 

Bank  162,168,169,174,638 

Carter  v.  National  Bank  of  Lewis- 
ton  481,482,485,487 
V.  Wake  647,  C4 8 
V.  Willard  300 
Cartwright  v.  Wilmerding  37,  333,  344 
Gary  v.  White  681 
Case  V.  Bank                              221,  226 
Casey  v.  Cavaroc    23,  80,  86,  93,  585 
V.  La    Societe    de    Credit 

Mobilier  193,  585 

V.  National  Bank  80 

V.  Schuchardt  80 

Cass  V.  Higenbotam   52,  545,  567,  595 

Castello  V.  City  Bank  of  Albany 

737,  738 
Cayuga  Co.  Nat.  Bank  v.  Daniels 

229,  257,  260,  262 
Ceas  V.  Bramley  23,  27 

Cecil  Bank  i;.  Heald  111 

Central  Savings  Bank  v.  Garrison 

237,  283,  302 

Chamberlain  v.  Greenleaf       502,  506, 

508,  510,  512 

Chamberlyn  v.  Delarive  702 

Chambersburg  Ins.  Co.  v.  Smith 

1,  209,  221,  663 

Chapman  v.  Brooks  425 

V.  Clough  593,  681 

V.  Gale  631 

Charles  v.  Coker  362,  591 

Charter    Oak    Life    Ins.    Co.   v. 

Brant  68 

Charter    Oak    Life    Ins.    Co.   v. 

Smith  692,  705 

Cheesman  v.  Exall  52,  568,  569 

Cherry  v.  Frost      117,  168,  212,  423, 

466,  468,  469,  470 

V.  Miller  704 

Chesley  v.  St.  Clair  434 

Chester  v.  Kingston  Bank       515,  517 

Chicago    Artesian    Well    Co.  v. 

Corey  635 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Chicago  Dock  Co.  v.  Foster     286,  303 
Chicago    Taylor   Printing   Press 

Co.  V.  Lowell  341 

Chicopee  Bank  r.  Chapin  111 

Child  V.  Hugg  638,  737,  746 

Chouteau  v.  Allen  72,  424,  610, 

635,  638,  730 
Chouteau    Spring    Co.   v.  Harris 

162,  174 
Christmas  v.  Mitchell  485 

Chrysler  v.  Griswold  115 

Citizens*  Nat.  Bank  of  Baltimore 

V.  Hooper  40,  85,  104,  105 

City  Bank  v.  Barrow  345 

i;.  Rome,  W.  &  O.  R. 

R.  Co.  262 

V.  Taylor  89 

City  Bank  of  Racine  v.  Babcoek     734 

City  Fire  Ins.  Co.  v.  Olmsted  28 

Clark  V.  Bank  of  Montreal  257 

V,  Bouvain  634 

V.  Dearborn  277,  382 

V.  Ely  528,  531 

V.  Gilbert  643 

V.  Henry  18,  353 

V.  Iselin  80,  86 

V.  Mundal  688 

V.  Pinney  753 

V.  Spence  413 

V.  Young  132,  681,  702 

Clarke  v.  Meigs  495 

Clement  v.  Leverett  96 

Cleveland  v.  State  Bank  117 

Cleverly  v.  Brackett  590 

Clodfelter  v.  Cox  212 

Clothier  v.  Adriance  115 

Cobbr.  Doyle  99,  111 

Cochran  v.  Ripy  290,  315,  323 

Cocke  V.  Chaney  95,  682 

Coddington  r.  Bay  117 

Coffin  V.  Cliicago  Northern  Pacific 

Construction  Co.  645 

Coggs  V.  Bernard,  1,  7,  394,  395, 

403,  405,  420,  542 

Coit  V.  Humbert  94,  128,  424 

Colby  i\  Cressy  23,  40 

Cole  V.  Bank  of  Montreal  418 

V.  North  Western  Bank         328, 

333,  344,  345,  346,  348 

V.  Saulpaugh  122 

Coleman  v.  Riches  246 

V.  Shelton  431 

Colket  V.  VAViH  723,  744 

Collins  I'.  Buck  23,  26,  27,  44 

V.  Dawley  68,  145,  541 

V.  Martin  90 

CoUinson  v.  Lister  485,  488 


Colquitt  V.  Stultz  692,  728,  729 

Colt  V.  Ives  185 

V.  Lasnier  485 

V.  Owens  495,  756,  757 

Combes  v.  Chandler  135,  304 

Combination  Trust  Co.  v.  Weed 

71,  72 
Combs  V.  Tuchelt  23,  35 

Comeau  v.  Guild  Farm  Oil  Co. 

168,  206 
Commercial  Bank  v.  Martin  700 

Commercial  Bank    v.  Rochester 

City  Bank  528 

Commercial   Bank  of  Buffalo  v. 

Kortright  206 

Commercial  Bank  of  Rochester  v. 

Shuart  89 

Commonwealth  v.  Butterick  428 

V.  Cooper  500 

V.  Watmough        174, 
209 
Compton  V.  Jones  540 

Comstock  V.  Hannah  104 

V.  Hier  107,  117,  677 

V.  Smith  664,  681,  685 

Conant  v.  Reed  179 

Conkling  v.  Vail  115 

Conner  v.  Carpenter  4,  13 

Connerly    v.    Planters'    &    Mer- 
chants' Ins.  Co.  117,  122 
Constant  v.  Matteson  526 
Conyngham's  Appeal      610,  641,  725, 
727,  739,  741,  742,  755 
Cook  V.  Real  349 
V.  Helms                     89,  115,  117 
V.  Tullis  585 
Cool  17.  Phillips  297 
Cooper  V.  Ray           23,  40,  44,  45,  48, 
364,  570 
Copeland  r.  Manton  117 
Copis  V.  Middleton                             513 
Corbett  v.  Underwood        23,  497,  499 
Cornick  v.  Richards       159,  161,  168, 
212,  219,  220 
Cornwall  v.  Gould  590 
Cornwell's  Appeal  523 
Cortelyou  v.  Lansing      5,  7,  560,  603, 

721 
Costelo  V.  Crowell  102 

Cottam  V.  Eastern  Counties  Ry. 

Co.  476 

Cotton  V.  Watkins  887 

Coty  V.  Barnes  13 

Covell  V.  Loud         498,  023,  723,  736 
Covely  r.  Fox  705 

Coventry  v.  Gladstone  257,  258 

Covin  V.  Hill  244,  349,  353 

XV 


TABLE   OF  CASES. 


Reference  is  to  Sections. 


Cowdrey  v.  Vandenburgh        134,  466 
Cowling  i\  Beaclium  356 

Grain  v.  Paine  142 

Crandall  r.  Vickery  122 

Crease  v.  Babcock  437 

Crisp  V.  Miller  23 

Crocker  v.  Crocker  478,  479 

Cronise  v.  Kellogg  673 

Crosby  v.  Crafts  630 

V.  Roub  669 

Cross  V.  Zellerbach  152 

Cruikshank  i;.  Duffin  482 

Culluni  V.  Branch  Bank  523,  530 

Culver  V.  Benedict  111,  132 

Cumber  v.  Wane  702 

Cummings  v.  Boyd  117,  124 

V.  Little  515 

V.  Webster  221 

Cunninsham  v.  Ala.  Life  Ins.  & 

Trust^Co.  221 

Currie  r.  Misa  111,113,115,132 

Curtis  V.  Mohr  89,  669 

V.  Tyler  524,  712 

Cashing  v.  Breed  317 

Cushman  v.  Hayes  580,  590,  603, 

610,  640 
r.  Thayer  Manuf.   Jew- 
elry Co.  165,  170,  176,466 
Cutting  V.  Marlon  415 


D. 

Dalton  V.  Smith  659 

Dando's  Appeal  66 

Danforth  v.  Denny  34 

Darst  V.  Bates  590,  681 

Daubigny  u.  Duval  327,341,418 

Davenport  v.  City  Bank  29 
Davenport  Nat.  Bank  v.  Home- 

yer  233,  262 

Davidson  v.  Cooper  164 

Davis  V.  Alston  700 

V.  Bank  of  England  464 

V.  Bowsher  357,  360 

V.  Bradley  280 

V.  Funk  610,  654,  725 

V.  Miller  107,  117 

V.  Russell  111,  299 

V.  Strohm  117 

Day  V.  Holmes  507 

V.  Leal  130 

V.  Saunders  115 

V.  Swift  5,  23,  40 

Dayton  Nat.  Bank  v.  Merchants' 

Nat.  Bank  77,  541,  584 

Dean  v.  Howell  471 

xvi 


Dean  v.  King  246 

V.  Lawham  62 

Dearborn  v.  Union  Nat.  Bank  of 

Brunswick  25,  410,  411 

Dearie  t;.  Hall  136 

De  Bern  ales  v.  Fuller  356 

De  Blois  V.  Reiss  5 

De  Bouchout  v.  Goldsmid  327 

Decker  i'.  Mathews  561 

De  Lisle  v.  Priestman  603,  610 

Demainbray  v.  Metcalfe  418 

D'Meza's  Succession  29,  139 

Denipsey  v.  Gardner  300 

Dennison,  ex  parte  509 

Denny  v.  Lyon      165,  173,  462,  465, 

472 
Depeau  v.  Waddington  117,  124 

Dering  v.  Winchelsea  534 

De  Ronge  v.  Elliott  68 

Desdoity,  ex  parte  441 

Dewey  v.  Bowman         9,  19,  140,  610 
De  Witt  V.  Perkins  115 

De  Wolf  V.  Gardner  265 

D'Wolf  I'.  Harris  13 

Dey  V.  Bey  485 

De  Zeng  r.  Fyfe  122 

Dickinson  v.  Cent.  Nat.  Bank        168, 

196 
V.  Dudey  466 

Diller  v.  Brubaker  725,  727 

Dilworth  v.  McKelvy  436 

Ditson  V.  Randall  303 

Divver  v.  McLaughlin  355 

Dix  V.  Tully  89,  664 

Dixon  V.  Dixon  111,  122 

V.  Yates  568 

Doak  17.  Bank  of  the  State       5,  6,  23, 

656 

Doane  v.  Russell  1 

Dobson,  ex  parte  168 

Dodds  V.  Hills  494 

Dodge  V.  Meyer       229,  260,  262,  568 

V.  Stanton  709 

Dodson  V.  Simpson  485 

Dole  r.  Olmstead  317,319 

Dolhonde,  Succession  of         111,  621 

Donald  v.  Suckling       2,  23,  231,  332, 

418,  420,  421,  422,  570,  579 

Donohoe  v.  Gamble  655 

Doolittle  V.  Cook  111 

Dorrill  v.  Eaton  554 

Dovey's  Appeal  115,  466,  469 

Dowler  v.  Cushwa  372,  584 

Downes  v.  Back  753 

Dows  V.  Cobb  242 

V.  Erkstrone  319 

V.  Greene  230,  266 


TABLE    OF    CASES. 


Reference  is  to  Sections. 


Dows  V.  Nat.  Exch.  Bank        3  7,  229, 

255,  256,  258,  262,  265,  271 

V.  Perrin  230 

i;.  Rush  266 

Drake  v.  AVhite  .  408 

Draper  r.  Cowles  115 

V.  Saxton  89,  98 

Driscoll  V.  Bradley  ]\Ianuf.  Co.        221 

V.  West,  &c.  Manuf.  Co.    206 

Ducasse  v.  Keyser  193 

v.  McKenna       621,  664,  669 

Dnden  i\  Waitzfelder  635 

Duell  V.  Ciidlipp  55,  368,  369 

Dugan  V.  Spra<i;ue  590,  681,  705 

Duke  I'.  Cahawba  Co.  Nav.  Co.       181 

Duniont  v.  Fry  533 

Duncan  v.  Jaudoa  474,  481 

Duncomb  v.  N.  Y.,  Housatonic  & 

Northern  R.  R.  Co.    72,  74,  75,  77, 

142 
Dungan  v.  Mut.  Benefit  Life  Ins. 
Co.  9,  137,  138,  145,  153 


Dunham  v.  Jackson 
Dunn  V.  Meserve 
Dupre  V.  Fall 
Dupuy  V.  Clark 

i;.  Gibson 
Durant  v.  Einstein 

Dutton  V.  Conn.  Bank 
Dyer  v.  Pearson 
Dyott's  Estate 


E. 


545 

93 

370,  425 

716 

641 

556,  557,  641, 

735 

185 

344 

700 


Eagleton  v.  Gutteridge 
Earle  v.  N.  Y.  Life  Ins.  Co. 
Early  &  Lane's  Appeal 
East  River  Bank  v.  ButterwoTth 


Easter  v.  Minard 
Eastman  u.  Avery 
V.  Foster 
Eby  V.  Guest 

V.  Ihjopes 
Ede  V.  Johnson 
Eichelljerger  v.  Murdock 
Eisendrath  v.  Knauer 
Elder  V.  Rouse 
Eiiershaw  v.  Magn 
Ellis's  Appeal 
Ellis  V.  kreutzinger 
Elwell  V.  Dodge 
Elwood  i;.  Deifeiidorf 
Emery  j;.  Irving  Xat.  Bank 
Ernes  u.  Widdowson 
Emiy  I'.  Lye 

b 


93, 

7,  8 

523,  526, 


153, 


485, 

130, 
130, 


164 

649 
209 
122 
675 
,  15 
530 
209 
17 
183 
360 
5  74 
590 
255 
486 
147 
1 25 
681 
229 
590 
688 


Empire  City  Bank,  in  re 
Enthoven  v.  Hoyle 
p]rb  V.  Great  Western  Ry.  Co. 
Erie   &   Pacific    Dispatch  v.    St. 
Louis  Cotton  Compress  Co. 


Erskine  v.  Lowenstein 
Essex  Co.  Bank  v.  Russell 
Esty  V.  Graham 
Evans  v.  Darlington 

V.  Potter 

V.  Truman 
Evansville  Nat.  Bank  v. 

politan  Nat.  Bank 
Evertson  v.  Booth 
Exchange  Bank  v.  Butner 
Exeter  Bank  v.  Gordon 


4,  153, 
422, 

Metro- 

679 


437 

164 
246 

299, 
301 
460 
122 
418 
610 
579 
350 

224 
,  712 
89 
716 


F. 


Co. 


103, 


Factors'  &   Traders'  Ins 
Dry  Dock  Co. 

Fancourt  v.  Thorne 

Fant  V.  Miller 
,   V.  Sprigg 

Farina  v.  Home 

Farmer  v.  Gregory 

Farmers'  &  Mechanics'  Nat.  Bank 
V.  Atkinson 
I'.  Hazeltine 
I'.  Lang  325, 

V.  Logan         229, 

Farmers'  Bank  of  Md.  v.  Iglehart 

Farnsworth  v.  Hemnier 

Farnum  v.  Boutelle 

Farrington  v.  Frankfort  Bank 

Farwell  c.  Importers'  &  Traders' 
Nat.  Bank  85,  6G4,  665, 

Fatman  v.  Lobach  461,  466, 

Faulkner  v.  Hill 

Fay  r.  Gi-ay 

Fearon  v.  Bowers 

Fellows  V.  Harris 
V.  Prentiss 

Felt  V.  Heye 

Felton  V.  Brooks 

Fennell  v.  McGowan 

Fenouille  v.  Hamilton 

Ferdon  v.  Jones 

Ferguson    v.    Northern 

Fetty place  v.  Dutch 
Fickctt,  in  re 
Field  V.  Leavitt 

V.  SchiclTclin 
Findlay  v.  llosmcr 

XV  ii 


502,  507, 


132, 
179,  418,  471, 
393, 
672, 
117, 


Bank  of 
317,  318, 


193 
730 
425 
621 
300 
323 

270 
270 
326 
270 
221 
500 
588 
117 

677 
467 
426 
509 
279 
111 
681 
473 
396 
711 
129 
688 

323 
8G4 
629 
606 
490 
587 


TABLE    OF   CASES. 


Reference  is  to  Sections. 


Finney's  Appeal  209 

Firemen's  Ins.  Co.  v.  Wilkinson     681 
First  iS'at.  Bank  v.  Bates  280 

V.  Crocker   260,  263, 
268 
V.  Hall  122 

V.  Hartford  Life 
&      Annnity 
Ins.  Co.    185,  222 
V.  Nelson  23,  29,  40, 
327,  328 
V.  Northern     11. 

R.    229,  242,  273 
V.  Ocean      Nat. 

Bank  415 

V.  Pettit  389 

V.  Shaw       333,  341, 

348,  349,  353 

First   Nat.    Bank    of    Cincinnati 

V.  Kelly  37,  228 

First  Nat.   Bank  of   Green   Bay 

V.  Dearborn  263,  265 

First   Nat.    Bank    of    Louisville 
V.  Boyce       296,  332,  422,  571,  574, 

579 
First  Nat.  Bank  of  Wellsburg  v. 

Kimberlands  651,  657,  713 

Fisliback  v.  Weaver  634 

Fisher  v.  Brown  474,  494 

V.  Essex  Bank  196 

V.  Fisher  89,  94,  111,  676 

V.  Meek  600 

V.  Seliwman  451,  457,  458 

V.  Sharpe  115 

Fitchburg  Savings  Bank  v.  Rice  494, 

520 
Fitchburg  Savings  Bank  v.   Tor- 

rey  168,  515 

Fitz,  ex  parte  15,  42 

Fitzgerald  v.  Blocher      633,  638,  732, 

739,  745 

Flarty  v.  Odium  51 

Flash  V.  Schwabacker  268 

Fletcher  v.  Chase  117 

V.  Dickinson     651,  657,  721, 

748 

V.  Howard  4,  40 

Florsheim  v.  Howell  334 

Flowers  v.  Sproule  556,  561,  566 

Fluker  v.  Bullard  81 

Foltier  v.  Schroder  23 

Foote  V.  Brown  692 

Forbes  v.  Boston  &  Lowell  R.  R. 

Co.   228,  229,  242,  261,  263, 

273,  274,  275,  277 

y.  Fitchburg  R.  R.  Co.        317 

Fordyce  v.  Peper  331 

xviii 


Fortitude,  The  64 

Foster  v.  Essex  Bank  415 

V.  Purdy  593,  681 

Fourth  Nat.   Bank  v.   St.    Louis 

Cotton  Compress  Co.  280,  283, 

303,  306 
Fowle  V.  Ward  750,  752 

Foy  V.  Blackstone  115 

Foye,  in  re  529 

Fraker  v.  Reeve       18,  140,  6.52,  657, 

658 
France  v.  Clark  726,  736 

Francia  v.  Joseph  117 

Franklin  v.  Neate  364,  370 

Franklin     Bank    v.    Commercial 

Bank  76 

Franklin    Company  v.  Lewiston 

Inst,  for  Savings  76 

Franklin  Sav.  Inst.  v.  Preetorius  729 
Frans  v.  Young  65 

Fraser  v.  Charleston       166,  168,  174, 

466 

Frazer  v.  Hilliard  307 

Freeman  v.  Benedict  719 

V.  Buckingham  246,  248 

V.  East  India  Co.  64 

Freund  v.  Importers'  &  Traders' 

Nat.  Bank  122 

Frey  r.  Clifford  111 

Frost  V.  Shaw  50 

Frothingham  v.  Morse  435,  750 

Fuentes  v.  Montis  344,  347 

Fullerton  v.  Sturges  135 

Furniss  v.  Gilchrist  117,  125 


G. 

Gage  V.  Punchard  716,  719 

Gahn  yf  Niemcewiez  129 

Gainsford  v.  Carroll  753 

Gale  i;.  Ward  27 

Galena  &  Southern  Wis.   R.  R. 

Co.  I'.  Stahl  71 

Gallaher  v.  Cohen  54 

Gallinger  v.  Pomeroy  84 

Galway  v.  Fullerton  69 

Gambling  v.  Haight  663 

Gammon  v.  Huse  675 

Gardiner  v.  Stiydam  318 

Gardner  v.  Gager  98,  111 

V.  Maxwell  89 

Garlick  v.  James  153,  603,  608,  610, 
651,  665,  716 
Garrard  v.  Pittsburgh  &  Connels- 

ville  R.  R.  Co.  124,  490,  491 

Garthi  v.  Howard  52 


TABLE    OF   CASES. 


Reference  is  to  Sections. 


Garton  v.  Union  City  Bank  102 

Gass  I'.  Hampton  466 

Gaston  v.  Am.  Exch.  Nat.  Bank 

474,  481 
Gaty  V.  Holliday  398 

Gay  V.  Moss  9,  21,  140,  610,  661, 

662,  727 
Gebhart  v.  Sorrels  117 

Geddes  r.  Bennett  40,  321 

Ge£ffken  v.  Slingerland  551 

Genet  o.  Howland  556,  612,  726, 

727,  732,  736 
Genin  v.  Isaacson  508 

German  Security  Bank  v.  Jeffer- 
son 221 
German  Union  Building  Asso.  v. 

Sendmeyer  163,  165,  168 

Geron  v.  Geron  396 

Geyer  v.  "Western  Ins.  Co.  221 

Giblin  v.  JNlcMuUen  415 

Gibson  v.  Chillicothe  Bank    280,  29  7, 

325,  326 


Conner 
Stevens 


111,  116 

262,265,280,  299, 

325,  326 

V.  Warden  585 

Gilbert  v.  oMarsh  702 

Gile  V.  Cubitt  104 

V.  Hutchinson  304 

Gilliat  V.  Lynch  356 

Gilpin  V.  Howell  151,  508,  509 

Gilson  V.  Martin  397 

Ginz  V.  Stiimph  155 

Giovanovich  v.  Citizens'  Bank  of 

La.  Ill,  116 

Girard  Fire  &  Marine  Ins.  Co.  v. 

Marr         ^  403,  692,  705,  718 

Gittings  V.  Nelson  30 

Glazier  v.  Douglass  513 

Gleason  v.  Drew  13 

Glenn  v.  Smith  687 

Gliilden  v.  Lucas  262 

Globe  National  Bank  v.  Ingalls  639,724 
Glover  v.  Austin  33 

Glynn    v.    East    &    West    ludia 

Docks  Co.  231,  279 

Godin  I'.  London  Ins.  Co.  147 

Gold  Milling  Co.  v.  Nat.  Bank  77 

Goldsmidt     i;.     First     Metliodist 

Church  610,  614,  653 

Goldstein  v.  Ilort  31,  52 

Goodall  V.  Kichanlson  706,  729 

Goodeiioiigh  r.  City  Bank  257 

Goodeiiow  V.  Dunn  30 

Goodman  v.  Harvey  96,  104 

V.  Simonds       101,  105,  107, 
HI,  131 


Goodwin  v.  Am.  Nat.  Bank    482, 

Gorgier  v.  Mieville 

Goss  V.  Emerson  418,  422, 

Gottlieb  V.  Hartman 

Gould  t'.  Central  Trust  Co. 

V.  Farmers'  Loan  &  Trust 


469, 


Co. 

V.  Robson. 
V.  Segee 
Graham  v.  Dyster 
Grandin  v.  LeRoy 
Granite  Bank  v.  Ayers 

V.  Richardson 
Grant  v.  Ellicott 
V,  Holden 

V.  Kidwell  111, 

V.  Mechanics'  Bank  of  Phil- 
adelphia 
r.  Norway 
V.  Taylor 
V.  Vaughan 
Gratitudine,  The 
Gray  v.  Agnew 

V.  Armistead 
V.  Portland  Bank 
Greeley  v.  Reading 
Green  v.  Clarke 

Greenbaum  v.  Megibben  296, 

Greenfield  Bank  c.  Leavitt 
Greening  t\  Wilkinson 
Greenleaf  v.  Dows 
Greenwell  v.  Haydon 
Gregory  v.  INIorris 
Greiner  v.  Greiner 
Greneaux  v.  Wheeler 
Griggs  V.  Howe 
Grimm  v.  Warner 
Grinncll,  in  re 
Griswold  V.  Davis 
V.  Haven 
V.  Jackson 

V.  Seligman        451,  457, 
Grocers'  Bank  v.  Penfield 
Grove  v.  Brien 

V.  Roberts 
Grover  v.  WoodrufT 
Gruman  v.  Smith  508,  577,  742,756, 
Grymes  v.  Hone  170, 

Guichard  v.  Morgan 
Guion  V.  Doherty 
Guild  V.  Butler  513,  515, 

Gurney  i;.  Behrend  230,  257, 


489 
96 

425 
54 

512 

512 
129 
115 
327 
122 
612 
728 
122 
716 
675 


90, 


246, 


221 
246 
357 
104 
64 
328 
61 
750 
12 
434 
323 
750 
753 
317 
115 
18 
513 
111 
680 
364 
724 
89 
310 
543 
458 
122 
229 
702 
496 
757 
210 
342 
68  7 
518 
258 


H. 


Had  win  r.  Fisk  334 

Hagar  v.  Union  Nat.  Bank  79,  224,  398 

xix 


TABLE   OF  CASES. 


Reference  is  to  Sections. 


Hagojcrty  v.  Pittman  524 

Haille  v.  Smith  263 

Hale  v.  Milwaukee  Dock  Co.  282,  299, 

312,  313 

V.  Walker  437 

Hall  V.  Green  692 

V.  Hoxsey  711 

V.  INIarston  356 

V.  Rose    Hill    &     Evanston 

Road  Co.  176,  461 

Hallpjarten  v.  Oldham,  263,  300 

Halliday  v.  Holgate     3,  418,  420,  422, 

571,  579,  748 

Ham  V.  Ham  474,  4  75,  476 

Hamilton  v.  State  Bank         611,  638, 

732,  745 

V.  Wagner  4,  6,  8,  362 

Hampton  v.  Phipps         514,  522,  534, 

535,  537 

Hancock  v.  Franklin  Ins.  Co.         543, 

545,  581,  746 

V.  Hodgson  111 

Hanks  v.  Drake  495,  496,  736 

Hanna  v.  Holton       693,  702,  710,  713 

Harding  v.  Commercial  Loan  Co.  144 

Hardman  v.  Booth  348 

Hardy  v.  Jaudon  508,  510,  566 

Harper  v.  Goodsell  40 

Harrall's  Case  67 

Harrington  v.  Dorr  122 

Harris  v.  Birch  6 

V.  Bradley  280,  298 

V,  Brooks  518 

V.  Johnston  95,  682 

Harrison  v.  Harrison  753,  755 

Harshaw  v.  McKesson  681 

Hart  V.  Burton  21,  553 

V.  Ten  Eyck     557,  603,  610,  640 

Hartman  i\  Dowdel  124 

Hartop  V.  Hoare  54 

Hartwell  v.  Whitman  534 

Hasbrouck  I'.  Vandervoort     153,  556, 

558 
Haskell  v.  Lambert  102 

Haskins  v.  Kelly  137,  542 

V.  Patterson  11,  24 

Hatch  V.  Douglas  495 

Hathaway  v.  Fall  River  Nat.  Bank 

356,  543,  544,  576 
V.  Haynes  255,  261 

Hauselt  v.  Harrison  18 

Haven  v.  Foley  526 

V.  Low  24 

Havens  v.  Foudry  523,  526 

Haverhill  Loan  &  Fund  Assoc,  v. 

Cronin  588 

Hawks  V.  Hinchcliff        681,  682,  684 

XX 


Hawley  v.  Brumagim  508 

Hayden  v.  Davis  568 

Haynes  v.  Forshaw  485 

Hays  V.  Riddle  44,  432 

Hay  ward  v.  National  Bank  743 

Hazard  v.  Abel  303 

V.  Fiske  -353 

V.  Loring  15 

V.  Wells  692,  700 

Hazzard  v.  Duke  82,  575 

Heath  v.  Griswold  507 

V.  Hand  523 

V,  Mahoney  733 

V.   Silverthorn   Lead  Min. 

ing  &  Smelting  Co.         115, 

444,  687 

Hedges  v.  Sealy  93 

Helm  V.  Meyer  5,  334 

V.  Swiggett  172 

V.  Young  523,  530 

Henry  v.  Davis  137 

V.  Eddy         427,  540,  570,  631 

V.  Philadelphia  Warehouse 

Co.  333 

Herrick  v.  Borst  702 

Herrman  v.  Maxwell  398 

Hess's  Estate  538 

Hestonville,    &c.    R.    R.    Co.   v. 

Shields  635 

Heyman  v.  Flewker  345 

Hey  wood  v.  Watson  111 

Hibblewhite  v.  M'Morine  164 

Hieskell  v.  Farmers'  &  Mechanics' 

Nat.  Bank       260,261,265,276,278 

Hiligsberg's  Succession  23,  149 

Hill  V.  Finnigan  638 

V.  Newichawanick  Co.    170,  206, 

398 

V.  Simpson  485 

V.  Smith  400,  750 

V.  Stevenson  148 

Hilton  V.  Sims  362,  664,  669 

V.  Vanderbilt  351 

Hines  v.  Strong  20,  546 

Hinton's  Case  104 

Hoard  v.  Garner  613,  713 

Hoare  v.  Parker  59 

Hobbs  V.  Western  Nat.  Bank  482 

Hodgson  V.  Shaw  613 

Hoffman  v.  Caron  56 

V.  Johnson  700 

V.  Noble  303,  327 

Holbrook  v.  Baker  372 

V.  N.  J.  Zinc  Co.     1 70,  206, 

466 

Holliday  v.  Holgate  422 

Holmes  v.  Bailey  262 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Holmes  v.  German  Security  Bank 

229,  262 

V.  Lvkins  687 

Holton  V.  Sniith  327 

Holyoke  Bank  v.  Burnliam  437,  440 

Homer  v.  Savings  Bank  of  New 

Haven  640 

Homes  v.  Crane  18,  23 

V.  Smyth  115 

Hooper  t\  Ramsbottom  52 

Hope  V.  Lawrence  502,  563 
Hopewell  v.  Cumberland  Bank      525, 

530 

Hopper  I'.  Smith  421,  571 

Hoppin  V.  Biiffum  168 

Home  I".  Bod  well  518 

Horner  v.  Dennis  380 

V.  Savings  Bank  418 

Horr  V.  Barker  280,  299 

Horton  v.  IMorgan  508,  510 

Houser  v.  Houser  664,  669 

V.  Kemp  8 

Houton  V.  Holliday  396 

Howard  v.  Bri^rham  729 

V.  Card  373 

Hoyt  V.  Baker  303 

V.  Hartford  F.  Ins.  Co.  326 

r.  Hoyt  115 

Hubbard  v.  "Slosely  424 

Hubbell  V.  Drexel  418,  509 

Hubbersty  v.  Ward  246 

Hudson  V.  Hunt  372 

t'.  Richardson  398 

Hughes  V.  Johnson  553 

r.  Littlefield  513 

Humble  v.  Langston  164 

Hunsaker  v.  Sturgis  398 

Hunt  V.  ILAton  372 

Hunter  v.  Moul         115,  695,  702,  718 

Hunterdon  Co.   Bank  v.   Nassau 

Bank  204 

Huntington  v.  Clemence  382 

V.  Mather  153 

Hurd  r.  Little  130 

Hurst  V.  Coley  45,  432 

Hutchins  V.  State  Bank  482 

Hutchinson  v.  Boggs  124 

V.  Boura  329 

Hutton  V.  Arnett  44,  45 

Huyler  v.  Dahoney  598,  656 

Uyutt  V.  Argenti  731 


Idaho,  The  244,  349,  568 

Indiana   Hi  111.  Cent.    Rv.  Co.  v. 
McKernan  610,035,640,727 


Inglis  r.  Kennedy  122 

Insurance  Co.  v.  Goodfellow  1  74 

V.  Kiger  320,  334 

International    Bank    v.    German 

Bank  91,  135 

Iowa  College  v.  Hill    94,  104,  115,  117 

Irwin  V.  Bailey  89 

V.  Tabb  124 


Jack  V.  Morrison  523 

Jackson  v.  Polack  117 

V.  Shawl  616 

Jacobs  V.  Latour  599 

James's  Appeal  355,  551 

James  v.  Badger  130 

V.  Hamilton  750 

Janvrin  v.  Fotrg  12 

Jarolauski  v.  Saunderson  610 

Jarvis  v.  Rogers     52,  56,  57,  355,  356, 

357,  418,  422,  460,  467,  568,  570, 

577,  578 

Jaudon  v.  Nat.  City  Bank      474,  481, 

490 
Jeffersonville,  Madison  &  Ind.  Ry. 

Co.  V.  Irvin  273 

Jenkins  i'.  Gunnison  686 

V.  National  Village  Bank 

409,  410 

V.  Schaub  89,  117 

Jenkyns  i'.  Brown  255,  260,  208 

Jenness  y.  Bean  96,  117 

Jennison  v.  Parker  692,  701,  702 

Jerome  v.  McCarter         584,  603,  724 

Jervis  v.  Smith  587,  663 

Jessel  V.  Bath  246 

Jesup  V.  City  Bank  of  Racine         675 

Jewftt  V.  Warren  36,  111 

Johnson  v.  Barney  115 

V.  Bartlett  513 

r.  Credit  Lyonnais  344 

V.  Dexter  720 

V.  Huston  82 

V.  Lallin    168,  169,  174,  176, 

437 

V.  Smith  23,  34,  418 

r.  Stear     418,422,577,578, 

579 

V.  Underhill  109,  437 

V.  Way  104 

V.  Weed  68  7 

Johnston  i;.  Charlottesville    Nat. 

Hank  77 

Jolii't  Iron  &  Steel  Co.  v.  Scioto 
Fire  Brick  Co.  651,  721 

xxi 


TABLE    OF    CASES. 


Reference  is  to  Sections. 


Jones  I'.  Baldwin 

4, 

307 

V.  Benedict 

548 

V.  Hawkins 

664, 

669 

V.  Jolinson 

17 

I'.  Merchants' 

Bank  of  Al- 

bany 

582 

V.  Quinnipiack  Bank    526, 

529 

V.  Rahilly 

15 

V.  Scott 

5,  50,  590, 

591 

V.  Smitli 

3,  7 

V.  Thurmond 

583 

V.  Tinclier 

522 

V.  Witter 

142, 

669 

Jordan  v.  Hudson 

513 

Joslyn  V.  Grand  Tru 

nkRy.  Co. 

264 

Judson  V.  Corcoraa 

212 

K. 

Kamena  v.  Huelbig 
Kearslake  v.  Morgan 
Keeler  v.  Goodwin 
Keiser  v.  Topping 
Kellogg  v.  Stockwell 
Kelly  V.  Ferguson 
Kelsey  v.  Rosborough 
Kemmil  v.  Wilson 
Kemp  V.  Falk 

V.  Westbrook 


Kendrick  v.  Lomax 

Kennedy  v.  Whitwell 

Kent  V.  Ginter 

Kephart  v.  Butcher 

Kergin  v.  Dawson 

Kerr  v.  Cowen 

Ketchum  v.  Bank  of  Commerce 

Key  V.  Fielding 

Keys  V.  Brush 

Kibbe,  in  re 

Killian  I'.  Hoffman 

Kimball  v.  Hildreth 

Kimbro  v.  Lytle 

Kimmel  v.  Stoner 

Kinder  v.  Shaw 

King  V.  Doolittle 

V.  Green 
Kingsbury  v.  Phelps 
Kingsford  v.  Merry 
Kinney  v.  Kruse 
Kinsey  v.  McDearmon 
Kirkpatrick  v.  Howk 

V.  Muirhead  115,  117,  124 

Kiser  w.  Ruddick      687,  692,  700,  705 

Kitchell  V.  Vanadar  64 

Kittera's  Estate  681 

xxii 


143 
132 

317 
23,  27,  28 

168,  437 

82,  106,  675 

687 

590 

267 

370,  556,  557, 

581,  603 
129 
750 
753 
687,  692,  702 
373 
106 
371 
663 
524 
598 
635 
15,  19,  23,40 
117 
755 

327,  329 
117 
354 
554 
348 
89,  669 
523 
515 


Klopp  V.  Lebanon  Bank  513,  522 

Knights  V.  Wifi'en  308 

Knox  17.  Clifford  115 

Kortria:ht  v.  Commercial  Bank  of 

Buffalo  163,  170,  755 

Kramer's  Appeal  523,  524 

Kramer  v.  Farmers'  Bank  525 

Kraus  v.  Arnold  545 

Kunkel  v.  Fitzhugh  523,  526 


L. 

Lacroix  v.  Derbigny 

Laing  v.  Burley 

Lake  r.  Brutton 

Lallande  v.  Ingram 

Laloire  v.  W^ilfz 

Lamb  v.  Attenborouq;h  341, 

Lamberton  v.  Windom     692,  693, 

Lane  v.  Bailey  357,  360, 

V.  Padelford 

V.  Stacy 
Lanfear  v.  Blossman  257, 

V.  Sumner  263, 

Langdon  v.  Buel  11,  13,  23, 

Langton  v.  Waring 
Lapping  v.  Duffy 
Lathrop  v.  Morris 
Lauckton  v.  Wolcott 
Lauman's  Appeal  154, 

Lawrence  v.  Clark  115, 

V.  IMcCalmont 
i;.  Maxwell     501,   502, 


Lawson  v 
Lawton  V 
Lazier  v. 


V.  Minturn 
I  Weston 
Newland 
Nevin 


505,  561, 


Lear  v.  Friedlander 
Leas  V.  James 
Leask  v,  Scott 


Leavitt  v.  Fisher 


231, 


163,  166,  168, 
463, 


Le  Breton  v.  Pierce 
Le  Croy  v.  Eastman 
Lee  V.  Baldwin 

V.  Bradlee 

V.    Citizens'  Xat.    Bank    of 
Piqua  208, 

V.   Smead  115, 

Leet  V.  Wadsworth 
Legg  V.  Evans 

V.  Willard 
Leggett  V.  Bank  of  Sing  Sing 
Lehman  v.  TallaseelNIanuf.  Co.  73, 
Leitch  V.  Wells    66, 170,  206,481, 


675 
172 
513 
193 
575 
345 
702 
422 
106 
534 
265 
300 
590 
44 
540 
122 
588 
155 
117 
692 

503, 
723 
275 
104 
593 
663 
687 
17 
266 

461, 
466 
111 
509 
707 
23 

221 
117 
328 
418 
699 
221 
142 
482 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Lenheim  v.  Wilmarding  117 

Levy  V.  Loeb  500,  508,  577 

Lewis  V.  De  Forest  527,  529 

V.  Graham       8,  153,  570,  610, 

636,  727,  748 

V.  Mott     8,  421,  422,  570,  579, 

725 


V.  Stevenson 

58 

f.  United  States 

685 

r.  Yarn  urn 

418, 

665 

Lickbarrow  v.  Mason    2,  7, 

228, 

231, 
266 

Lidderdale  v.  Montrose 

51 

Liles,  Succession  of 

^92 

Lindsay  v.  Chase 

664 

Lineker  v.  Ayeshford 

242 

Lishy  )'.  O'Brien 

692 

Little  V.  Barker 

727 

741 

Lloyd  V.  Si'Tourney 

96 

Lobban  v.  Garnett 

4 

Lobdoll  V.  Merchants'  &  Manufac- 

turers' Bank 

669, 

675 

V.  Stowell 

755 

Lockwood  V.  Ewer 

603, 

610 

V.     Mechanics' 

Nat. 

Bank 

210 

Loewenthal  v.  McCormick 

143 

Logan  V.  Anderson 

587 

V.  Cassell 

671, 

6  74 

V.  Smith 

143 

London  &   County  Banking  Co. 

V.  Rate  1  iff e 

279 

Long  V.  Spruill  688 

Look  V.  Comstock  40 

Loomis  V.  Stave      574,  576,  611,  650, 
730,  732,  750 
Loon,  The  246 

Lord  V.  Ocean  Bank       117,  124,  685 
Loring  I'.  Brodie  478,  486 

u.  Salisbury  Mills         4  77,479 
Loud  V.  Burke        425,  605,  610,  613. 

727 
Loughridge  v.  Bov?land  522 

Louisiana  Nat.  Bank  v.  Laveille     246 
Louisiana  State  Bank  v.  Gaiennie    89, 
111,  664, 675 
Loveridge  r.  Cooper  136 

Lowry  v.  Bank  of  Baltimore  466 

V.  Commercial  &  Farmers' 

Bank  of  Baltimore       4  77, 
479,  481 
Luckett  V.  Townsend   4,  423,  553,  603 
Luckey  v.  Gannon  561,  566 

Ludwi<4  V.  Ili'^hley  124 

Lumpkin  i;.  Mills  513 

Lyle  r.  Barker  62,  433 

Lyon  V.  Coburu  382 


Lyon  I'.  Ewings  '  89 

V.  Huntingdon  Bank      692,  693 


M. 


Mc Arthur  v.  Howett  394 

M'Arthur  v.  Seaforth  753 

McCabe  v.  McKinstry  236 

McCalla  v.  Clark  400,  542,  566 

McCants  v.  Wells  229 

M'Carthy  v.  Goold  51 

:McCarty  v.  Clark  664 

V.  Roots  107 

M'Combie  v.  Davies     2,  58,  329,  331, 

418,422 
McConibie  v.  Spader  303,  314 

McConeghy  v.  McCaw  357 

McConnell  v.  Scott  525 

V.  Stettinius  68  7 

jVlcCormick  v.  Irwin  522 

jNIcCoy  V.  Wilson  513 

McCready  v.  Haslock  6,  10,  34 

V.  Gaines  327,  328,  329 
McDaniels  r.  Flower  Brook  Man- 
ufacturing Co.  441,  444 
McDowell  V.  Bank  of  Wilmington  221 
McEwen  v.  Railroad  Co.  273 
Mcllenry  v.  Jewett  443 
Machinists'  Nat.  Bank  v.  Field  464 
Mack  V.  Baker  110 
Mackay  v.  Commercial  Bank  246 
McKee  v.  Judd  369 
McKenzie  v.  Branch  Bank  117 
McKnight  y.  Knisely  111 
McLean  v.  Buffalo  &  Lake  Hu- 
ron R'y  Co.  246 

V.  Fleming  246 

M'Lean  v.  Walker  5,  8 

M'Lniihan  v.  Bovard  692 

McMahon  v.  Macy  155,  458,  459 

MciMullen  v.  Neal  523,  524 

M'Neil  V.  Hill  280 

McNeil  V.  Tenth  Nat.  Bank    94,  169, 
170,  206,  466,  495,  725 
M'Neilly  v.  Richardson  356 

Macoinl)er  v.  Parker  30,  34,  42,  44 
McSpetlon  v.  Troy  City  Bank  125 
Magee  v.  Leggett  522 

Magruder  v.  Colston  437,  440 

Magwood  V.  Railroad  Bank  4  77 

Malioney  i».  Capcrlon  739 

Mairs  0.  Taylor  52 

Maitland   v.   Citizens'  Nat.    Bank 
of  Baltimore  104,  105,  106,  111, 

122,  124 
Mandlebaum  v.  N.  A.  Mining  Co.   197 

xxiii 


TABLE    OF    CASES. 


Reference  is  to  Sections. 


Mann  v.  Sbiffner  418 

Mannings.  McCIure  111,  113 

V.    Quicksilver    Mining 
Co.  172 

Maples  V.  Medlin  474 

]\Iarfiel(l  r.  Goodhue  351 

Marine  Bank  v.  Wright  257,  260, 

262 
Marine  Bank  of  Buffalo  v.  Fiske  254 
Markham  v.  Jaudon        495,  723,  736, 

738,  755 
Marlborough  Manuf.  Co.  v.  Smith 

172,  185 

Marschuetz  v.  Wright  703 

Marsh  v.  Lawrence  372 

Marshal  v.  Williams  553 

Martin,  in  re  523 

Martin  v.  Casey  5 

V.  Creditors  296 

V.  Reid  23,  44,  603,  615 

V.  Sedgwick  494 

Martini  v.  Coles       327,  328,  329,  342 

Mary  Ann  Guest,  The  266 

Maryland  Fire  Ins.  Co.   v.   Dal- 

rymple  640,  732,  737,  740 

Marziou  v.  Pioche  64,  550 

Mason  v.  Bogg  587 

V.  Great  Western  R'y  Co. 

255 

V.  Hickox  122 

Master  v.  Miller  164 

Mathews  v.  Aikin  513 

Matthews  v.  Albert  458,  459 

V.  Coe  756 

V.  jNIassachusetts    Nat. 

Bank  163,  167 

V.  Rutherford       5,  94,    106 
Mauge  V.  Heringhi  597,  603 

Maugham  v.  Sharpe  3 

Maure  v.  Harrison  523 

Maury  i;.  Coyle  403,409,417 

May  V.  Qiiiinby  115,  117 

V.  Sharp  692 

Maybee  v.  Tregent  243 

Mavberry  v.  Morris  115 

May  Flower,  The  246 

Maynard  v.  Sixth  Nat.  Bank  117 

Mayo  V.  Moore  89,  111,  675 

Mead  v.  Bunn  564 

Meadow  v.  Bird  111,  116 

Mears  v.  Waples  25  7 

Mechanics'    Bank   v.  Merchants' 

Bank  162,  221 

Mechanics'  Bank  v.  N.  Y.  &  N. 

H.  R.  R.  Co.  461 

Mechanics'  Building  Association 
V.  Ferguson  143 

xxiv 


Mechanics'  Building  &  Loan  Ass. 

V.  Conover  151,  153,  386 

Medewe's  Trust,  in  re  357,  360 

Melvin  v.  Lamar  Ins.  Co.  154 

Mendenhall  v.  Lenwell  681 

Merchants'  Bank  v.  Cook  441,  444 
Merchants'  Bank  v.  Livingston  493 
Merchants'  Bank  v.  Union  R.  R. 

Trans.  Co.  242,  262 

Merchants'    Bank   of  Canada   v. 

Livingston  467 

Merchants'  Nat.  Bank  v.  Bangs  228 
Mei'chants'  Nat.  Bank  v.  Hall        359, 

361 
Merchants'    Nat.  Bank  v.  Rich- 
ards    161,168,169,174,179,200, 

398 
Merchants'  Nat.  Bank  v.  Thomp- 
son 642 
Merchants'  Nat.   Bank  v.  Tren- 

holm  327,  422 

Merchants*  Nat.  Bank  of    Syra- 
cuse V.  Comstock  122 
Merchants'  &  Planters'  Nat.  Bank 

I'.  Masonic  Hall  57,  575 

Merriam  v.  Granite  Bank  111 

V.  Kellogg  722 

Merrifield  v.  Baker  396,  540 

Merrill  v.  N.  E.  Mut.  Life   Ins. 

Co.  145 

V.  Parker  6  7 

Metcalf  V.  Scholey  372 

Meux  u.  Bell  136 

Meyer  v.  Peck  252 

Meyerstein  v.  Barber        37,  231,  276, 

278 
Michigan    Central  R.  R.    Co.    v. 

Phillips  63,  262,  268 

Michigan  State  Bank  v.  Gardner  342 
Michigan  State  Bank  v.  Leaven- 
worth 111,132 
Middlesex  Bank  v.  Minot  588,  635 
Midgeley  v.  Sloeomb  587 
Miles  I'.  Walther  436 
Miller's  Appeal  587 
Miller  v.  Gettysburg  Bank  692,  713 
V.  Hannibal  &  St.  Jo.  R.  R. 

Co.  252 

V.  Larned  123 

V.  Ord  513 

V.  Race  104 

V.  Schneider  334 

V.  Williamson  485 

Milliken  v.  Dehon     18,  608,  610,  611, 

730,  732,  736 

Mills  V.  Gilbreth  410,  413 

V.  Gould  681 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


^lims  )'.  ]Mims 
Mitchell  V.  Ede 
V.  Levi 
V.  Roberts 
V.  AVinslow 
Mitford  V.  Mitford 
Mix  ('.  National  Bank 
iSIoffatt  V.  Van  Doren 
Mohawk  Bank  ;;.  Corey 


581 
255 
707 
592,  602 
585 
585 
111 
51 
115 


Mohawk  &  Hudson  R.  R.  in  re       44r-2 
Monk  I".  Whittenbury  344 

Monroe  r.  Hoff  690 

Monta<^ue   v.    Boston    &    Albany 

R.  R.  Co.  660 

Montross  v.  Clark  122 

Moodie  v.  Seventh  Nat.  Bank        466, 

467,  469 

Moody  r.  Andrews  89,  651,  664 

Moore  v.  Baird  124 

r.  Bank  162,  168,  174 

V.  Jones  437 

V.  Metropolitan  Nat.  Bank 

135, 466 

V.  Miller  94,  466,  666 

r.  Moberly  523,  532 

V.  Moore  534 

V.  Robinson  242,  244,  349 

V.  Ryder  117,  122 

Mores  v.  Conhara  395,  418 

Morgan  v.  Bank  of  N.  A.  221 

r.  Dod  15,  531,  610,  635 

v.  Jaudon  495,  496 

Morphy  V.  Garrett  656 

Morris  i'.  Olwine  587 

V.  Preston  96,  97 

Morris    Canal  &  Bankinij  Co.  v. 

Fisher     71,  143,  144,  151,  463,  657 
Morris  Canal  &  Bank  in":  Co.  v. 

Lewis  151,  463,  651,  721,  727 

Morse  v.  Woods  590,  593 

Moses  V.  Murcratroyd        523,  524,  712 

V.  Ranlet  587 

V.  St.  Paul  581,  584 

V.  Trice  541 

]\Iosley  ('.  Floyd  689 

Mount     Holly    Turnpike    Co.    ik 

Ferree  163,171,463,466 

Mower  V.  Sti(,-kney  372 

Mowrey  v.  \Valsii  56 

Mowry  V.  First  Nat.  Bank  632 

V.  Wood  150 

Moyce  v.  Ncwitii^ton  304 

Muirhuad  v.  Kirkpatrick         115,  692, 

718,  719 
Muldon  I'.  Wliittock  687 

Mulford  V.  Miiller  149 

Mullcr  V.  Pondir  86 


Mullia;an  v.  Wallace  490 

^NluUiner  ;;.  Florence  2,  577 

Muno-er  v.  Albany  City  Nat.  Bank 

686 
Munn  r.  Barnum  168,  206 

Munroe  v.  Holmes  482 

Murdock  V.  Columbus  Ins.  Co.         18, 

151,  611 
]\Iure,  ex  parte  692,  693 

^Murray  v.  Lardner  104 

Murrell  v.  Scott  513,  516,  711 

Muso-rave  v.  Beckendorif  755 

Myers  v.  Welles  132,  681 


N. 


Nabrinof  v.  Bank  of  Mobile  153 

Naglee'".  Lyman  111,  128 

V.  Pacific  Wharf  Co.  183 

Napier  v.  Elam  117 

Nash  V.  Norment  12 

National  Bank  v.  Case  77,  437 

V.  Merchants' 

Bank  265 

V.  Watsontown 

Bank    168,  169,  221, 

225 

r.  Winston       389,  422 

National    Bank    of     Chicago    v. 

Bayley  265 

National    Bank  of   Commerce  v. 

Merchants'  Nat.  Bank  257 

National    Bank  ot    Green  Bay  i^. 

Dearborn  '        229 

National  Bank  of  North    Amer- 
ica V.  Kirby  101 
National  Bank  of  the  Republic  v. 
Brooklyn  City  &  Newtown  R. 
R.  Co.  110 
National  Security  Bank  v.  McDon- 
ald 102 
Neiler  v.  Kelley       422,  509,  579,  755 
Neimcewicz  v.  Ghan                           681 
Nelson  v.  Eaton                                  664 
U.Edwards     84,117,610,664 
V.  Wellington                651,  669 
Neponset  Bank  v.  Leland                 356 
Nevan  i'.  Roup  36 
New  Bedford  Inst.  Sav.  r.  Fair- 
haven  Bank                                     526 
New  Bedford  Institution  for  Sav- 
ings I'.  Hathaway                             538 
Newlierry  v.  Detroit  &  Lake  Su- 
perior Iron  Manufacturing  Co.  179, 
197,  221,472 
Ncwbohl  V.  Wright                            327 
XXV 


TABLE    OF   CASES. 


Reference  is  to  Sections. 


Newconib  v.  Baskett 

V.  Boston  &  Lowell  R. 

R.  Co.  264, 

V.  Cabell  280, 

New    Hampshire    Sav.    Bank   v. 

Colcord 
Newland,  in  re 
New  London  Bank  v.  Lee 
New  Orleans  Nat.  Banking  Asso. 
V.  Wiltz  194, 

Newport  &  Cincinnati  Bridge  Co. 
V.  Douglass  G57, 

Newsom  v.  Thornton  232, 

Newsome  v.  Davis  729, 

Newton  r.  Fay  l.'i,  151, 

New  York  &  N.  H.  R.  R.  Co.  v. 
Schuyler  170,  176,  206, 

Nexsen  i'.  Lyell 
Nichol  V.  Bate 
NichoUs  V.  Peak 

Nickerson  v.  Darrow  341, 

Nisbit  V.  Macon  Bank  &  Trust  Co. 

28, 
Noel  V.  Murray  687,  688, 

Noland  v.  Clark  692,  706, 

Noles  V.  Marable 
Northrop  i'.  Curtis 

V.  Newton  &  Bridgeport 
Turnpike  Co. 
Norton  v.  Eastman  130, 

V.  Piscataqua  Ins.  Co. 
V.  PUnwb 
V.  Waite 
Norwood  V.  Guerdon 
Nottebohm  v.  Maas 
Nourse  v.  Prime 
Noyes  v.  Spaulding 
Nutter  V.  Stover 
Nutting  1-.  Thomasoa 


145, 
43, 

168, 


481, 


574 

273 
283 

515 

588 
515 

221 

741 
342 
739 
155 

4G1 
719 
117 
485 
344 
27, 
152 
691 
707 
429 
185 

185 
519 
142 
358 
115 
146 
367 
509 
215 
117 
492 


o. 


Oakford  u.  Johnson  117 

Oakley,  in  re  582 

Gates  i\  First  National  Bank  of 

Montgomery  107,  109,  110,  131 

Ocean  Nat.  Bank  of  N.  Y.  v.  Fant 

596,  696 
Odiorne  v.  Maxcy  327 

O'Dougherty  v.  Railroad  Co.  275 

Ogden  V.  Lathrop  501,  610,  640,  727 
Ogg  V.  Shuter  271 

Ogle  V.  Atkinson  568 

Ohio  &  Miss.  R.  R.  Co.  v.  Kerr  63 
Ohio  Life  Ins.  Co.  v.  Ledyard  523 
Ohio  Loan  &  Trust  Co.  i\  Reeder  525 

xxvi 


Okie  V.  Spencer  132 

Oliver  v.  Great  Western  R'y  Co.  246 
O'Meara  v.  N.  A.  Mining  Co.  550,  751 
O'Neill  V.  Whigham  728,  729 

Orange  &  Alexandi'ia  R.  R.  Co. 

V.  Fulvey  750 

Ormsby  v.  Fortune  692 

Orr  ?;.  Bigelow  168,  206 

Osborn  v.  Noble  525,  530 

Osgood  V.  Thompson  Bank  111 

Otis  V.  Gardner      163,  168,  172,  466, 

473 
Outhwite  V.  Porter  1 1 1 

Overlock  v.  Hills  667,  700,  707 

Overstreet  v.  Nunn  664 

Owen  V.  Routh  753 

Owens  I'.  Kinsey  23,  30 

V.  Miller  523 

Owenson  v.  Morse  688 

Oxford  Turnpike  Co.  v.  Bunnel    1 72, 

185 


Paddon  v.  Taylor 
Page  V.  Fowler 

V.  Smith 
Paige  V.  Chapman 
Paine  v.  Furnas 
Palmtag  v.  Doutrick 
Pannell  v.  Hurley 
Paris  V.  Hulett 
Park  Bank  v.  Watson 
Parker  v.  Brancker 

V.  Patrick 
Parrott  v.  Byers 
Parshall  v.  Eggart 

Pai-sons  V.  Overmire 

Partee  v.  Bedford 
V.  Corning 

Patterson  v.  Deering 
V.  Harland 
V.  Tash 

Pattison  v.  Hull 

Payne  v.  Bensley 
V.  Cutler 
V.  AVoodhall 

Peacock  v.  Pursell 
V.  Rhodes 

Pease  v.  Gloahec 

Peebles,  in  re 

Peet  V.  Baxter 

Pence  v.  Gale 

Pendergast  v.  Bank  of 

Pendleton  v.  Fay 

Pen  field  v.  Thayer 


115, 

303 

756 

441 

90 

111, 

664 

52,  568, 

569 

475 

526 

122 

351, 

610 

56 

183, 

210 

4,  23,  38 

39, 

321 

36 

687 

691 

585 

94, 100 

105 

373 

327,  328, 

341 

548 

111 

128 

115 

51 

692,  693 

702 

104 

258 

221 

327 

716 

Stockton 

221 

485 

148 

TABLE   OF  CASES. 


Reference  is  to  Sections. 


Pennsylvania  R.  R.  Co.'s  Appeal  465, 
466,  467 
People  V.  Elmore  183 

People's  Bank  I?.  Gavley  316 

r.  Grid  ley  190 

People's  Nat.  Bauk  v.  Stewart       255, 
258,  268,  271,  273 
Percival  r.  Franipton  111 

Perit  V.  Pittfleld  17 

Perrine  r.  Mobile  Ins.  Co.  513 

Perry  v.  Bia;elow  157 

Persoh  v.  Quiffgle  163,  467 

Peters  v.  Elliott  262,  263,  265 

Petitt  r.  First  Nat.  Bank       4,  7,  228, 
229,  260,  262 
Petrie  u.  Clark  117,124,482 

Pettee  v.  Diistin  1 2 

Pettigrew  v.  Chave  122 

Pettingill  v.  Pettingill  487 

Petty  t:  Overall  375,  404,  409 

Phares  v.  Barbour  516 

Philbrooks  v.  McEwen  515 

Phillip's  Appeal  755 

Phillips  V.  Huth  329,  333 

V.  Thompson     355,  531,  551, 
712 
Phoenix  Ins.  Co.  v.  Allen  701 

V.  Church  115 

Pickens  v.  Yarborough  692 

Pickering  v.  Busk  327,  344,  466 

Picquet  v.  Swan  372 

Pierce  17.  Boston  Sav.  Bank  148 

Pigot  V.  Cubley  603,  614,  615 

Pinkerton  i'.  Manchester  &  Law- 
rence R.  R.  Co.  23,  202,  750 
Pinney  v.  Kimpton  541 
Pilot  V.  Johnson  19:5 
Pitt  V.  Albritton  568 
Pitts  V.  Foglesong  117,  122,  124 
Pittsburg   Locomotive  &   Car 

Works  V.  State  Nat.  Bank       63,  77 
Pittsburgh  &  Connelsvillc  R.  R. 

Co.  V.  Barker  124,  129 

Place  V.  Mcllvain  681 

Plant's  Manufacturing  Co.   v. 

Falvey  663,  684 

Planters'  &  Merchants*  Mut.  Ins. 

Co.  V.  Seinia  Sav.  Bank       181,  221 
Piatt  i;.  Bee  be  122 

r.  Hawkins  185 

Pollard  V.  Vinton     230,  246,  248,  25:i 
Pollock  V.  National  Bank  4  79 

Pomeroy  v.  ALmhattan  Life  Ins. 

Co.  6.H 

V.  Smith  62,  372,  382, 

4  3.( 

Ponce  V.  McElvy  423,  566 


Porier  v.  Morris 
Portalis  v.  Tetley 
Porter  v.  Parks 

V.  Patterson 
Pothonier  v.  Dawson 
Potter  v.  Thompson 
Potts  V.  ]\Iayer 

Powder  Company  v.  Burkhardt 
Powell  V.  Henry 
Powers  V.  French 
Prall  V.  Hamil 

V.  Tilt 
Prather  i'.  Young 
Pratt's  Appeal 
Pratt  r.  Adams 

V.  Coman 

V.  Maynard 

V.  Park  man 


111 

352 

472,  736 

743 

1,  2,  231,  603 

612,  654 

115 

18 

02 

122 

485 

463,  466,  481,  485 

519,  539 

117 

524 

115,  681 

89 

268 


V.  Taunton   Copper  Manuf. 

Co.  464,479 

Prentice  v.  Zane  117 

Prentiss  v.  Graves 
Prescott  V.  Prescott  11, 

Prettyman  v.  Barnard 
Price  V.  Price 

V.   Wisconsin   IMarine   & 

Fire  Ins.  Co.   282,  340,  343 
Prince  v.  Boston  &  Lowell  R.  R. 


117 
366 
687 
111 


Co. 

228 

Pring  V.  Clarkson 

130 

Proctor  V.  Baldwin 

142 

Propst  V.  Roseman 

29 

Prosser  v.  Lcatherman 

486 

Prout  V.  Lomer 

673 

Providence  Thread  Co.  v.   Al- 

drich 

83 

Pullman  v.  Upton 

437 

Purchase  v.  Mattison 

115 

122 

Putnam  v.  Rowe 

382 

I'.  Russell 

587 

Q. 


Queioz  i\  Truman 
Quinn  v.  Hard 


327 
111,  122 


R. 


Rahilly  v.  "Wilson  236 
Raih-oad  Company  v.  National 

Bank            104,  107,  10!),  112,  118, 

119,  120 

Kailroad  Company  v.  Thomason  168 

Kal.-y  V.  Ross  400 

KauiMicll  i;.  IMorgan  471 

xxvii 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Rand  r. White  ^Mountains  R.  R.  Co.  750 
Randolph  v.  Merchants'  Nat. 

Bank  716,  718 

Randon  v.  Barton  753 

Rankin  v.  McCuUough  730,  738 

I'.  Wilsey  527,  529 

Raphael  v.  Bank  of  England  104 

Rasch  I'.  His  Creditors  727 

Ratcliff  V.  Davis  7,  405,  418,  422,  542 
V.  Vance  364,  566 

Rawls  V.  Deshler  266 

Read  v.  Lambert  495,  580,  74  8 

Reddick  r.  Jones  111,117 

Reeves  i'.  Capper  40,  44,  231 

V.  Plourrh  692 

V.  Smith  53 

Reichenbach  r.  McKean  388 

Rew  I'.  Barber  688 

Rej-nolds  v.  Witte  565,  574 

Rezner  i\  Hatch  117 

Rhinelander  v.  Barrow  716 

Rice's  Appeal  523 

Rice  v.  Benedict  709 

V.  Cutter  301 

V.  Dewey  523 

V.  Raitt  117 

V.  Southern  Pa.  Iron  &  R. 
R.  Co.  664 

Rich  I'.  Boyce  512 

Richards  v.  Davis  654 

Richardson  v.  Abendroth  43  7 

V.  Ins.  Co.  729 

V.  Mann  635,  740 

V.  Washington  Bank  513, 
515 
V.  Wyman  588 

Riley  v.  Anderson  116 

Ringling  i\  Kohn  91 

Ripley  v.  Greenleaf  130 

Ritter  v.  Cushuian  736 

Rives  V.  M'Losky  716 

Robbins  v.  Richardson  122 

Roberts  v.  Colvin  530 

V.  Hall  111,  114 

V.  Svkes  581 

V.  Thompson  692,  700 

V.  Wyatt  45 

Robertson  );.  Hay  304 

V.  Wilcox  4,  60,  604 

Robins  v.  May  102 

Robinson  v.  Frost  355,  356 

V.  Hurley        574,  590,  603, 
611,  640,  720,  727,  728, 
732,  750 
V.  Memphis  &  Charles- 
ton R.  R.  Co.    246,  249, 
250,  251 

xxviii 


Robinson  v.  Smith               94 

,111 

,  128 

V.  Stuart 

261 

Robson  V.  Swart 

312 

Roche  r.  Ladd 

675 

Rodger  v.    Comtoir  d'Escompte 

1      de  Paris 

266 

Rodi-iguez  v.  Heffernan 

328 

;  Rogers  v.  N.  J.  Ins.  Co 

204 

Romaine  v.  Van  Allen 

5 

755 

Root  c.  French 

304 

Rosa  V.  Brotherson 

115 

Rose  I'.  Lewis 

701 

Rosenback  v.  Bank 

162 

Rosenzweig  v.  Frazer      572, 

577 

610 

Ross  t'.  Bedell 

122 

V.  South  Western  R.  R 

Co. 

168, 
492 

V.  Whitfield 

122 

r.  Wilson 

526, 

532 

Rothermel  v.  Marr 

42,  43 

Rowan  V.  State  Bank 

401 

Rowe  V.  Haines 

111 

Rowley  V.  Bigelow 
Roxboroujih  v,  Messick 

233, 

245 
117 

Rover  v.  Keystone  Nat.  Bank 

117 

Rozet  V.  McClellan         590, 

594, 

610, 

728 

729 

Ruddick  v.  Lloyd 

115 

117 

Ruggles  V.  Patten 

130 

Rumball  v.  Metropolitan  Bar 

k 

466 

Runals  v.  Harding 

707 

Russell  V.  Buck 

133 

V.  Hudduck 

104 

V.  Hester 

692 

V.  O'Brien 

300 

I'.  Plaice 

482 

V.  Splater 
Ryall  V.  Rolle 

37 

111 

,40 

V.  Rowles 

♦    . 

542 

Ryan  v.  Chew 

n7, 

126 

Sabin  v.  Bank  of  Woodstock  215 

Sackett  v.  Johnson  111 

Safely  v.  Gilmore  750 

St.  John  V.  O'Connel  356,  575 

V.  Purdy  689 

St.  Losky  t.  Davidson  407 

St.  Louis  National  Bank  v.  Ross   262, 
280,  299,  301,  350 
St.  Louis   Perpetual   Ins.   Co.   v. 

Goodfellow  162,  221 

Salisbury  Mills  i;.  Townsend  4  79 

Salters  v.  Genin  508 

Saltmarsh  v.  Tuthill  131 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Saltns  V.  Everett 
Sanders  v.  Davis 
r.  Reed 
Sands  v.  Church 
Sargent  i'.  Carr 


353 
4,  6,  364 
515 
471 
372 


V.  Essex  lly.  Co.  19G 

V.  FrankUn  lus.  Co.  168, 

196,  221 

V.  Metcalf  94 

Saul  V.  Kruger  387 

Savage  v.  Smythe  466 

V.  Wiuehester  588 

Savings  Bank  i\  Bates  111 

Saylors  v.  Saylors  523,  526 

Sayre  i\  King  82,  681 

Schepeler  v.  Eisner  496,  738 

Schepp  I'.  Carpenter  122 

Schiti'er  i'.  Feagin  356 

Schotsinans  v.  R'y  Co.  255 

Schuchardt  v.  Hall  257,  258 

Schweriii  v.  McKie  410 

Scott  r.  Betts  117 

r.  Crews  409,412,595 

i\    Nat.    Bank   of    Chester 

Valley  415 

V.  Owen  327 

V.  Parker  593,  681 

V.  Rogers  756 

V.  Scholey  372 

r.  Tyler  482 

Scripture  v.  Soapstone  Co.      179,  202 

Sears  v.  Wingate  246 

Second  Nat.  Bank  i'.  Hemingray    680 

i".  Nat.    State 

Bank  224 

V.  Ocean  Nat. 

Bank  409 

V.  Walbridge    280, 
281,296,313 
Second  -  "Nat.    Bank    of    Erie   v. 

Smith  410,411,417 

Security  Bank  v.  Luttgen       229,  255, 

257,  259 

Seibert  t*.  Thompson  523 

V.  True  523 

Selden  v.  Vermilya  649 

Seligman   v.  Charlottesville  Nat. 

Bank  77 

Sellers  v.  Jones  692,  698,  700,  705 
Seneca  County  Bank  v.  Neass  122 
Sestare  v.  Best  76 

Sevin  v.  Cailloiiet  139 

Sewall  V.  BdsUjn  W^ater  Tower  Co.  163 
Sexton  0.  Graliiim  821 

Seymour  v.  Collturn  23 

I'.  Lewis  144 

V.  Van  Slyck  697 


Shaw  V.  Ferguson 
V.  Foster 
t'.  R.  R.  Co. 
I'.  Spencer 
V.  Wiltshire 
Sheehan  v.  Taft 
Shelbury  v.  Scotsford 
Sheldon  v.  Raveret 
Slielton  V.  French 
Shej^ardson  v.  Cary 

V.  Green 
Shepherd  v.  Hampton 
V.  Harrison 
17.  Johnson 


577 

279 

235,  241 

474 

15,  16,  40 

534 

568 

680 

57,  418 

282,  326 

282,  325,  326 

753 

257,  269 

753 


Sheppard  v.  Union  Bank  348 

Sheraden  v.  Parker  516 

Sheridan  v.  New  Quay  Co.      568,  569 
Sherwood  v.  Meadow  Valley  Min- 
ing Co.  183,  461 
Shipman  v.  ^^tna  Ins.  Co.  185 
V.  Cook                        687,  689 
Shoemaker  v.  National  Mechan- 
ics' Bank                                   77,  414 
Shreeves  v.  Allen                               104 
Shufcldt  V.  Pease  115 
Shunk's  Appeal  587 
Sibley    v.     Quinsigamond     Nat. 

Bank  168,  169,  196 

Sickles  V.  Richardson  599 

Sigourney  v.  Lloyd  96 

V.  Wetherell  130,  519 

V.  Zellerbach  152 

Silverman  v.  McGrath  23,  29 

Simons  v.  S.  AV.  Railway  Bank      474 
Sims  V.  Canfield  7 

Sitgreaves  v.  Farmers' &  Mechan- 
ics' Bank  117,  173,  361,  472, 
640,  725,  727,  736 
Skilding  r.  Warren  117 
Skillings  v.  BoUman       229,  231,  232, 

262,  278 
Skowhegan  Bank  v.  Cutler  194 

Slee  V.  Manhattan  Co.  13  7 

Slevin  v.  Morrow  692,  693,  700 

Small  V.  Smith  117 

Smart  v.  Sandars  327 

Smith,  ex  parte  588 

V.  American  Coal  Co.         170, 
206 
V.  Atkins  30 

V.  Ayer  482,  485,  486 

V.  Btmting  683 

V.  Crescent  City  Stock  Land- 
ing Co.  168 
V.  Dennison                          69,  358 
V.  First  Nat.  Bank  of  West- 
lield                                       415 

xxix 


TABLE  OF   CASES. 


Reference  is  to  Sections. 


Smith 


r. 

Hall 

578 

V. 

Isaacs 

89,  111 

V. 

Livingston 

104 

V. 

Mariner 

150 

V. 

Miller 

694,  719 

V.  Quartz  Mining  Co.    153,  155 
V.  Rockwell  596 

V.  Sasser  23,  40,  47 

V.  Slaughter  House  Co.        161, 
174,  193 
V.  Strout        591,  663,  678,  684 


Smithhiirst  v.  Edmunds 

Smyth  V.  Craig 

Snow  V.  Fourth  Nat.  Bank 

V.  Thomastou  Bank 
Soffe  V.  Gallaglier 
Sonoma  Valley  Bank  v.  Hill 


30 

27 

93 

681 

689 

590, 

593 

145 

372,433 

7 

418 

590 

719 


591, 


Soule  V.  Union  Bank 

V.  White 
Southcote's  Case 
Southern  v.  Mendum 
South  Sea  Co.  v.  Duncomb 
Southwick  i\  Sax 
Spalding  v.  Bank  of  Susquehanna 

County  596,  682 

V.  Ruding  26  7 

Sparhawk  v.  Drexel         652,  730,  737 
Spencer  v.  Ballou  122 

Sprague  v.  Cocheco  Manuf.  Co.      474 
Springer  i;.  Toothaker  515 

Spnrlock  v.  Pacific  R.  R.  Co.  162 

Srodes  v.  Caven  372,  388 

Stafford  V.  AVhitcomb  89 

Stalker  v.  McDonald        107,  115,  117 
Stamford  Bank  v.  Ferris  155 

Star  Fire  Ins.  Co.  v.  Palmer  740 

Starrett  v.  Barber 
State  V.  Ferris 
State  Bank  c.  Cox 
State  Ins.  Co.  v.  Gennett 

V.  Sax 
State  Nat.  Bank  v.  United  States 
Steamship  Dock  Co.  t;.  Heron  162,  221 
Stearns  v.  Bates  418,  515 

V.  Marsh  577,  578,  595, 

603,  609,  610,  640 
Stebbins.t;.  Phoenix  Fire  Ins.  Co.  221 
Stedman  v.  Gooch 
Steele  v.  Lord 
Steger  v.  Bush 
Steiger  v.  Third  Nat.  Bank 

342,  422 
Stenton  v.  Jerome  495,  496,  736,  747 
Stephens  v.  Hartley  650 

Stej)hensjn  v.  Price  753 

Sterling  c.  Jaudon  495,496 

XXX 


400 

680 

441 

466 

212 

171 

,  210 

tes 

356 

132 
540 
702 
327, 


Stetson  V.  Exchange  Bank  544 

V.  Gurney  344 

Stettheimer  v.  Meyer  115 

Stevens  u.  Campbell  115 

V.  Dedham  Inst,  for  Sav- 
ings 660 
V.  Hurlbut  Bank         610,  732 
Stewart  c.  Davis                                 515 
V.  Drake              508,  727,  736 
V.  Phoenix  Ins.  Co.            280, 
311,  318 
V.  Small                                117 
Stief  V.  Hart                              372,  387 
Stinson  v.  Thornton                 481,  492 
Stocking  0.  Conway                           699 
Stockwell  V.  St.  Louis  Mercantile 

Co.  172 

Stoddard  v.  Kimball  89,  94,  111, 

675,  676 

Stoker  V.  Cogswell  554 

Stokes  V.  Frazier  635,  638,  640, 

720,  721,  727,  740 

Stollenwerck  v.  Thacher         241,  242, 

258,  342,  344,  349 

Stone  V.  Marye  466 

V.  Swift  228 

V.   Wabash,    St.     Louis    & 

Pacific  R'y  Co.        229,  246 

Stotts  V.  Byers  117 

Stout  V.  Yaeger  Milling  Co.  147 

Strange  v.  Houston  &  Tex.  C.  R. 

R.  Co.  163,168,176,179,213, 

466 
Straughan  v.  Fairchild  110,  111,  121 
Straus  V.  Wessel  275 

Streeper  v.  McKee  588 

Strong  V.  Nat.  Mechanics'  Bank- 
ing Asso.  571,  727 
Strong  V.  Wooster  540 
Strout  V.  Natoma  Water  &  Mining 

Co.  183 

Struthers  v.  Kendall  115 

Stuart  V.  Biiiler  508,  596 

Sturges  V.  Keith  750,  754 

V.  Metropolitan  Nat.  Bank 

104 
Sturtevant  v.  Jaques  474 

Sublett  V.  McKinney  513 

Sumner  v.  Handet  34,  35 

Suydam  v.  Jenkins  750,  756 

Swan,  ex  parte  164 

Swan  V,  North   British  Australa- 
sian Co.  164,  464,  465 
V.  Produce  Bank  474 
Swasey  v.  North  Carolina  R.  R. 

Co.  646 

Sweet  V.  Barney  275 


TABLE   OF    CASES. 


Reference  is  to  Sections. 


Swett  V.  Brown  53,  67,  600 

Swift  V.  Tyson  89,  107, 

108,  110,  111,118 
Swire  r.  Leacb  433 

Swope  V.  Lef}inq:well  143 

S}recl  V.  Carruthers  404 


T. 

Taft  i\  Bowker  148 

Tajigard  r.  Curteniiis  577,  728 

Tag^gart  i:  Packard  19,  365 

Taliiti  Cotton  Co.  in  re  164 

Talmadge  v.  Tliird  Nat.  Bank        504 
Taltv   V.    Freedman's    Savings    & 

Trust  Co.       135,421,422,570,579 
Tarbell  i;.  Sturtevant  669,6  75 

Taussig  V.  Ilart  508,  510 

Tavlerr.  Great  Indian  Peninsular 


R'y  Co. 
Taylor  v.  Atchison 
V.  Clieever 
V.  Chester 
V.  Conner 
V.  Ketchum 
V.  Page 
i;.  Turner 


464 
104 
590,  593 
354 
687 
723 
9!) 
229,  268,  272, 
430,  431,650 
Telegraph  Co.  v.  Davenport  4  79 

Ten  Eyck  v.  Holmes  532 

Teutonia  Xat.  Bank  of  New  Or- 
leans V.  Loeb  356,  676 
Thacher  v.  Moors  346 
Thames,  Tlie                              271,  273 
Thames  Iron  Works  Co.  v.  Patent 

Derrick  Co.  1,  2,  641 

Thayer  v.  Daniels  136 

V.  Dwight  43 

Third  Nat.  Bank  v.  Harrison  651,  664 

Third  Nat.  Bank  of  Baltimore  v. 

Boyd      403,409,  411,414,416,417 

545 


Thomas  v.  Kvans 

I'.  Waterman 
Tliomason  r.  Dill 
'I'homasson  v.  Brown 
Thompson  v.  Andrews 
r.  Dol liver 
f.  Dominy 
V.  Patrick 
V.  Stevens 
V.  Toland 

Thorns  V.  Southard 
Tliorndikt!  v.  Biiili 
Tlioriie  V.  First  Nat.  Bank 


575 

405 

486 

23 

4,  16 

242 

394,  418,  422 

372 

183,  466,  4H0, 

495,  508 

6,  12,  65 

36 

321,  325, 

326 


Thorne  v.  Tilbury  568 

Thornton  v.  Exchange  Bank  523 

V.  Irwin  635 

Thrall  i'.  Spencer  526 

Tibbetts  v.  Flanders  24,  34 

Tiedeman  v.  Knox  231,  235,  241,  264 

Tilden  v.  iNIinor  261 

Tillinghast  v.  AVheaton  148 

Tobey  I'.  Barber  687 

Tooke  V.  Newman  674 

Toulmin  i;.  Hamilton  523 

Towne  v.  Rice  103 

Townsend  v.  Newell  601 

Traders'  Bank  v.  Bradner  117 
Tread  well  v.  Davis     40,  376,  433,  532 

Tjeuttel  V.  Bai-andon  96 

Trotter  v.  Crockett  681 

V.  Shi|)pen  124 

Tucker  v.  Bullington  27 

V.  N.  H.  Sav.  Bank  90,  96 

V.  Wilson  603,  610 

Turner  i-.  Liverpool  Docks  255 

V.  Trea<lway  115,  117 

Tuxworth  V.  IMoore  300,  364 

Twelves  v.  Williams  124 

Twopenny  i'.  Young  130 

Tyrrell  y.' Morris  61,482 


u. 


Ullnian  v.  Barnard  433 

Union    Bank    of    Georgetown  v. 

Laird  172,  221 

Union     Bank    of     Tennessee    r. 

Smiser  688,  689 

Union  Savings  Asso.  v.  St.  Louis 

Grain  Elevator  Co.  320 

Union  Trust  Co.  v.  Rigdon     4,  7,  393, 

405,  603,  651,  652,  716,  717 

United  Ins.  Co.  i\  Scott  64 

United  States  v.  Hodge  130,  681 

V.  New  Orleans  22 

V.  Vaughan       168,  171, 

209,  210 

United    States     Express    Co.    r. 

I\Ieints  429,  433 

Upton  V.  Burnham  221 

Unjuhart  r.  M'lver  .  331 

Uther  V.  Rich  104 


Vail  r.  Foster 
'  V.  Hamilton 

Valette  c.  Mascjn 
'  Vaile  V.  Cerrii 
I  Van  Amringe  i'.  Peabody 

xxxi 


523,  687 

441 

94,  111,  6  75 

268 

327 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Van  Arsdale  v.  Joiner  67 

Van  Blarcom  v.  Broadway  Bank     25, 

858,  370 
Vanderzee  r.  Willis  357,366,557 

Vane  v.  Rigden  482 

Van  Eman  i'.  Stanchfield  419 

Van  Etten  v.  Troudden  681 

Vanhorn  v.  Gilbough  503 

Van  Mater  v.  Ely  687 

Van  Pelt  v.  Otter  82 

Van  Riper  v.  Baldwin  92 

Vansands  v.  Middlesex  Co.  Bank  221 
Van  Wart  i'.  Woolley  702 

Vauglian  v.  AVood  755 

Vaupell  r.  Woodward     151,  495,  603, 

640,  721 
Vere  v.  Smith  404 

Vest  V.  Green  522 

Vickers  v.  Hortz  304,  348 

Vinton  v.  King  101 

Volieri  v.  Boyland  247 

VoorLis  V.  OlmsteaM  308 

Vose  V.  Yulee  705 


w. 

Wadsworth  v.  Thompson         553,  615 
Wakeman  v.  Gowdy       692,  693,  700, 

706 

Walcott  V.  Keith  23,  40 

Waldie  v.  Doll  42 

Walker  v.  Abt  360 

V.  Barker  587 

V.  Bartlett  164 

V.  Detroit    Transit    R'y 

Co.  163,  197,  466 

V.  Staples  15,  23,  40 

Wallace  w.  Agry  130 

V.  Berdell  721 

Waller  v.  Hanger  52 

Walsh  u.  Stille  474 

Walter  v.  Brewer  246 

V.  Smith  3 

Wanzer  v.  Cary  "  142 

Ward  V.  Evans  688,  702 

V.  Fellers  677 

V.  Sumner  13 

V.  Ward  540 

Wardell  v.  Howell  117 

Ware  v.  Otis  650 

V.  Russell  95 

Waring,  ex  parte  523 

Waring  r.  Cox  242 

Warner  v.  Martin     232,  327,  328,  418 

V.  Rising  Fawn  Iron  Co.    668 

V.  Sauk  County  Bank        435 

xxxii 


Washburn  v.  Pond  610,  612 

Waterman  v.  Brown  581 

Water  Power  Co.  v.  Brown     536,  727 
Watson  V.  Lane  568 

Way  V.  Davidson  44,  45,  47,  88 

V.  Smith  424 

Weakly  v.  Bell  130,  132 

Weaver  v.  Barden  115,  117,  127,  206, 

466,  469 
Webb  V.  Graniteville  Manuf.  Co.  486, 

490 

Weems  v.  Delta  Moss.  Co.  34 

Weirick  v.  Mahoning  Co.  Bank      135 

Wells  V.  Archer  147 

V.  Smith  531 

V.  Wells  657,  660,  707 

Wendell  v.  New  Hampshire  Bank  140 

West  V.  Bank  of  Rutland  587 

V.  Beach  5 

V.  Carolina  Life  Ins.  Co.         681 

V.  Pritchard  753 

r.  Wentworth  753 

West    Branch    &     Susquehanna 

Canal  Co.'s  A])peal  466 

Western  Union  R.  R.  Co.  v.  Wag- 
ner 63,  242,  280,  281,  303 
Westervelt  v.  Scott  9  7 
Weston  V.  Bear  River  &  Auburn 

Water  &  Mining  Co.  179,183 

Westphal  v.  Ludlow  702,  703 

Westzinthus,  m  7-e  267 

Wheeler  r.  Guild  94 

V.  Kewbould       610,  614,  651, 

664,  723 

V.  Wheeler  483 

Wheelock  i'.  Kost  437 

Whelan  v.  Kinsley  581,  583 

V.  Lynch  756 

Whitaker  v.  Sumner         15,  364,  418, 

590,  599,  600,  601 

Wbitbeck  v.  Van  Ness  687,  688 

White  V.  Garden  56,  304 

V.  Phelps      610,  651,  664,  669, 

675 

V.  Piatt  86,  88,  151 

V.  Salisbury  174 

V.  Springfield  Bank     115,  122, 

127,  467 

White   Mountain   R.   R.    v.  Bay 

State  Iron  Co.  55  7 

Whitin  V.  Paul  693,  700,  714 

Whitman  v.  Horton  644 

Whitney  v.  Dean  373 

V.  Coin  129,  687 

V.  Peay  418 

V.  State  Bank  150 

V.  Tibbits  36,  299 


TABLE   OF   CASES. 


Reference  is  to  Sections. 


Whitteker  v.  Charleston  Gas  Co.  651, 
657,  670,  713 
Whittemore  ?>.  Gibbs  418 

Whitten  i:  Wright  701 

Whitwell  V.  Brisbam  590,  599 

Wichita  Sav.  Bank  v.  Atchison, 

Topeka  &  Santa  F4  K.  R.  Co.     246 
Wicks  V.  Hatch  736,  737 

Wilcox  V.  Fairhaven  Bank  549 

Wiley,  in  re  83,  111,  586 

Wiley  V.  First  Nat.  Bank  of  Brat- 

tleboro  415 

Wilhelm  V.  Schmidt         590,  681,  687 
Wilkes  V.  Ferris  299,  372 

Willcocks,  ex  parte  441 

Williams  v.  Cheney  ~  675 

V.  Little  96,  115,  117 

V.  Mechanics'   Bank  of 

New  Haven  178 

V.  Price  692,  693 

V.  Smith  106,  675 

Williamson  v.  Branch    Bank     of 

Mobile  485 

V.  Culpepper  21 

V.  IMcClure  729 

V.  Morton  485 

Willis  V.  Fry  461 

u.  Phila.    &  Darby   R.   R. 

Co.  171,466,479 

Willoughby  tJ.  Comstock  577,  737 

V.  Spear  681 

Wilson  V.  Anderton  568 

V.  Brannan  603 

V.  Doster  61 

V.  Foot  518 

V.  Force  691 

V.  Knapp  12 

V.  Little  9,  151,  153,  509,  608, 

610,  665,  736,  755 

V.  Moore  485 

Winslow  V.  Norton  261 

Winter  v.  Belmont  Mining  Co.      183, 

461,  480 
Winthrop  Bank  v.  Jackson    409,  410, 
413,  594 
Wisconsin   M.    &   F.   Ins.  Co.  v. 

Bank  of  British  N.  A.  257 

Wise  V.  Charlton  103 

V.  Chase  688 


Wolf  r.  Wolf  361 

Wood's  Appeal        466,481,482,483 
Wood  V.  Dudley  18 

V.  Ellis  485 

V.  Hayes  498 

17.  Matthews  82,  717 

V.  Rowelitfe  345 

V.  Seitzinger  110 

Woodard  v.  Fitzpatrick  396 

Woodrufl'  V.  Halsey  429 

V.  Hill  111 

Wookey  v.  Pole  96 

Woolcocks  V.  Hart  679 

Woolfolk  V.  Bank  of  America  104 

Worcester  County  Bank  v.  Dor- 
chester &  Milton  Bank  104 
Worcester  Nat.  Bank  v.  Cheeney  111 
Word  V.  Kase                                      124 
V.  Morgan                        692,  700 
Work  V.  Bennett                       422,  579 
V.  Bray  ton                                 111 
Wormley  i^.  Lowry                             117 
AVorthington  v.  Tormey          495,  508, 
509,  612,  727 
Wright  V.  Bircher  13 
V.  Crockery  Ware  Co.         687 
V.  Ross              5,  137,  140,  740 
AV^urtz  V.  Hart                                     587 
Wyckoffi'.  Anthony         356,  357,  360 
Wyeth  V.  Nat.  Bank  of  Brighton      40 
V.  Nat.  Market  Bank              87 
Wyman  v.  American  Powder  Co.   750 


Yeatnian  v.  Savings  Inst.  584 

Yenni  v.  McNamee  280,  324,  325,  326 

Young  V.  Lambert  280 

V.  Scott  334 

V.  Vough  513 

Youngs  V.  Lee  115,  122 

V.  Stahelin  678,  687 


Z. 


Zellweger  v.  Caffe  89 

Zinipleman  v.  Veeder  651,  653,  716 

Zulick  i;.  Markham  466 

xxxiii 


THE  LAW  OF  PLEDGES, 


INCLUDIKG 


COLLATERAL  SECURITIES. 


THE  LAW  OF  PLEDGES 


INCLUDING 


COLLATERAL   SECURITIES. 


CHAPTER   I. 

THE   NATURE   OF    A   PT:EDGE. 

L  The  contract  defined,  1-3.                          I  IIL  Delivery  is  essential  to  create  a  pledge, 

n.  Distinguished  from  a  chattel  mortgage,  |  23-39. 

4-22.                                                       I  IV.  Possession   is  essential  to  continue  a 

I  pledge,  40-47. 

I.    The   Contract  defined. 

1.  A  pledge  raay  be  defined  to  be  a  deposit  of  personal  prop- 
erty as  security,  with  an  implied  power  of  sale  upon  default.^ 
Lord  Holt,^  who  was  the  first  to  make  a  s^'stematic  statement  of 
the  general  law  of  bailment,  defined  a  pawn  to  be  that  sort  of 
bailment  "  when  goods  or  chattels  are  delivered  to  another,  to  be 
a  security  to  him  for  money  borrowed  of  him  hy  the  bailor."  Sir 
WiUiam  Jones  ^  defined  it  to  be  "  a  bailment  of  goods  by  a  debtor 
to  his  creditor,  to  be  kept  by  him  till  his  debt  is  discharged." 
The  definition  given  it  by  Judge  Story  ^  is,  "  a  bailment  of  per- 
sonal property  as  a  security  for  some  debt  or  engagement." 

In  a  few  states  there  is  a  statutory  definition  of   a  pledge. 

^  An  implied  power  of  sale  always  Derrick  Co.   1   Johns.  &  H.   93;  and 

accompanies  a  deposit  of  property  in  though    the    usual    definitions    of     a 

pledge,  though  there  may  also  be  an  pledge  do   not  allude  to  this  charac- 

express  power  of  sale.     This  implied  teristic,  it  seems  that  no  definition  is 

power    of    sale    is    a    feature    which  complete  which  does  not  include  it. 

diHtinguishes   a   pledge   from   a  lien  ;  "^  Coggs  v.  Bernard,    2   Ld.  Raym. 

Polhonier  v.  Dawson,  Holt  N.  P.  383  ;  909,  913. 

Doane  v.  Kusseil,  3  Gray  (Mass.),  382;  8  Bailments,  118. 

Thames    Iron   Works    Co.    v.    Patent  *  BailmentP,  §  28G. 

1  1 


§  2.]  THE  NATURE   OF   A   PLEDGE. 

Thus,  in  California  ^  and  in  Dakota  Territory,^  a  pledge  is  de- 
fined to  be  a  deposit  of  personal  property  by  way  of  security  for 
the  pei'formance  of  another  act.  Every  contract  by  which  the 
possession  of  personal  property  is  transferred  as  security  only  is 
to  be  deemed  a  pledge.  In  Georgia,^  a  pledge  or  pawn  is  de- 
clared to  be  property  deposited  with  another  as  security  for  the 
payment  of  a  debt.  In  Louisiana*  a  pledge  is  declared  to  be  a 
contract  by  which  a  debtor  gives  something  to  his  creditor  as  a 
security  for  his  debt. 

The  term  "  collateral  security  "  has  in  recent  years  come  into 
general  use  to  designate  a  pledge  of  negotiable  paper,  corporate 
stocks,  or  other  incorporeal  personalty,  as  distinguished  from  a 
pledge  of  corporeal  chattels.  In  a  broad  sense,  "  collateral  secu- 
rity is  one,  side  by  side  with,  or  in  addition  to,  the  first,  or  in 
addition  to  the  debtor's  own  obligation  ;  "  ^  and  in  this  sense 
might  apply  to  a  mortgage  whether  of  real  or  personal  property, 
or  to  a  pledge  of  a  chattel,  or  of  a  chose  in  action  as  well.  But 
the  customary  use  of  the  terra  to  designate  a  pledge  of  incorpo- 
real personal  property  seems  now  to  be  well  established  ;  and  it 
is  convenient  to  have  a  term  to  distinguish  a  pledge  of  such  prop- 
erty from  an  ordinary  pledge  of  chattels,  because  many  rules  of 
law  applicable  to  the  one  pledge  are  not  applicable  to  the  other ; 
and  therefore  this  use  of  the  term  is  here  adopted  and  adhered 
to.6 

2.  A  pledge  is  something  more  than  a  mere  lien  and  some- 
thing less  than  a  mortgage.  In  an  early  English  case.  Chief 
Justice  Gibbs  said :  ^    "  Undoubtedly,  as  a  general  proposition, 

1  Codes  &  Stats.  1876,  §  7986  ;  Civil  enants,  or  the  payment  of  money  he- 
Code,  §  2986.  sides     the     principal     security.      By 

2  R.  Codes  1877,  §  1757  of  Civil  Worcester,  as  security  for  the  fulfil- 
Code.  ment  of  a  contract,  or  a  pecuniary  ob- 

8  Code  1873,  §  2138.  ligation  in  addition  to  the  principal 

4  R.  Civil   Code   1870,   p.  373,  art.  security. 
3133.  6  Story  on  Bailments,  §  288,  note 

6  Chambersburg  Ins.  Co.  v.  Smith,  by  Schouler.     And  see,  further,  upon 

11  Pa.  St.  120,  127,  per  Coulter,  J.  :  the  present  use  of  this  term,  Schoul- 

'' Collateral   security"  is   defined   by  er's  Bailments,  159. 
Bouvier  as   a  separate  obligation  at-         "^  Pothonier  v.  Dawson,  Holt  N.  P. 

tached  to   another  contract   to  guar-  383,385.    "  It  may  be  inferred,  there- 

anty  its  performance.     By   Webster,  fore,  that  the  contract  was  this  :  'If 

as  security  for  the  performance  of  cov-  I    (tbe  borrower)  repay  the   money, 

2 


THE   CONTRACT   DEFINED.  [§  3. 

a  right  of  lien  gives  no  right  to  sell  the  goods.  But  when  goods 
are  deposited  by  way  of  security,  to  indemnify  a  party  against  a 
loan  of  money,  it  is  more  than  a  lien.i  The  lender's  rights  are 
more  extensive  than  such  as  accrue  under  an  ordinary  lien  in  the 
way  of  trade."  Both  in  a  pledge  and  in  a  lien  the  general  prop- 
erty remains  in  the  debtor,  and  the  creditor  has  only  a  special 
property.  But  the  nature  and  extent  of  this  special  property  in 
the  two  cases  is  quite  different.  A  lien  gives  only  a  personal 
right  to  retain  possession.^  The  creditor  holding  this  security 
cannot  transfer  it  to  any  other  person,  nor  can  he  himself  enforce 
it  by  sale  of  his  own  motion,  without  the  aid  of  judicial  pro- 
ceedings.3  A  creditor  holding  a  pledge  may,  on  the  other  hand, 
transfer  his  interest  to  another,  and  he  may  himself  enforce  his 
security  by  sale  without  the  aid  of  a  court. 

3.  On  the  other  hand,  a  pledge  is  something  less  than  a 
mortgage,  or,  in  other  words,  "  a  mortgage  is  a  pledge  and 
more  ;  for  it  is  an  absolute  pledge  to  become  an  absolute  in- 
terest, if  not  redeemed  at  a  certain  time.*  A  pledge  is  a  deposit 
of  personal  effects,  not  to  be  taken  back  but  on  payment  of  a 
certain  sum,  by  express  stipulation  or  the  course  of  trade,  to  be 
a  lien  upon  them."    The  legal  title  to  the  property  passes  by  the 

you  must  redeliver  the  goods;  but  if         In  Donold  v.  Suckling,  L.  R.  1  Q.  B. 

I  fail  to  repay  it,  you  may  use  the  se-  585,  Cockburn,  C.  J.,  said:  "  We  are 

curity  I  have  left  to  repay  yourself.'  not  dealing  with  a  case  of  lien,  which 

I  think,  therefore,  the  defendant  (the  is  merely  the  right  to  retain  possession 

lender)    had   a   right   to    sell."     Per  of  the  chattel,  and  which  right  is  im- 

Gibbs,  C.  J."  mediately  lost  on  tlie  possession  beino- 

^  In  the  report  the  word  "  pledge"  parted  with,  unless   to  a  person  who 

is  used ;  but,  as  suggested  by  Mellor,  may  be  considered  as  the  agent  of  the 

J.,  in  Donold  r.  Suckling,  L.  R.  1   Q.  party  having  the  lien  for  the  purpose 

B.  585,  this  is  obviously  a  mistake  for  of   its   custody.      In  the  contract  of 

the  word  "  lien."  pledge,  the  pawnor  invests  the  pawnee 

2  M'Combie  v.  Davies,   7  East,  6.  with  much  more  than  the  mere  right 

Lord  Ellenborough  there  declared  that  of  possession.      lie  invests  him  with 

"  nothing  could  be  clearer  than  that  a  right  to  deal  with  the  thing  pledged 

liens  were  personal,  and  could  not  be  as  his  own,  if   the  debt  be  not  j)aid, 

transferred  by  a  tortious  pledge."  and  the  thing  redeemed,  at   the   ap- 

Mr.  Justice  BuUer,  in  his  celebrated  pointed  time." 
judgment  in  Lickbarrow  v.  Mason,  6  »  Thames  Iron  Works  Co.  i;.  Patent 

East,  21   note,  says  that  he  who  has  Derrick  Co.  1  Johns.  &   II.  93;  Mul- 

a  lien  only  on  goods  has  no  right  to  liner  v.  Florence,  3  Q.  B.  D.  484. 
Bell  or  dispose  of   the  goods;  he  can  ♦  Jones   v.  Smith,  2  Ves.  Jr.   372, 

only  retain  them  till  the  price  is  paid,  per  Master  of  the  Rolls. 

3 


§  4.]  THE   NATURE    OF   A   PLEDGE. 

mortgage,  and  not  merely  the  possession,  or  the  right  of  posses- 
sion ;  while  the  mortgagor  has  merely  an  equitable  right  to  re- 
deem.^ A  pledge,  therefore,  differs  from  a  mortgage,  and  from 
a  lien  as  well.  As  said  by  Mr.  Justice  Willes,  in  delivering  a 
judgment  in  the  Exchequer  Chamber  :  "There  are  three  kinds 
of  security :  the  first,  a  simple  lien  ;  the  second,  a  mortgage  pass- 
ing the  property  out  and  out ;  the  third,  a  security  intermediate 
between  a  lien  and  a  mortgage,  viz.,  a  pledge,  where  by  contract 
a  deposit  of  goods  is  made  a  security  for  a  debt,  and  the  right  to 
the  property  vests  in  the  pledgee  so  far  as  is  necessary  to  secure 
the  debt."  2 

II.  Distinguished  from  a  Chattel  Mortgage. 

4.  A  pledge  differs  from  a  chattel  mortgage  in  three  essen- 
tial characteristics.  1.  It  may  be  constituted  without  any  con- 
tract in  writing,  merely  by  delivery  of  the  thing  pledged.^  2.  It  is 
constituted  by  a  delivery  of  the  thing  pledged,  and  is  continued 
only  so  long  as  the  possession  remains  with  the  creditor.*  3.  It 
does  not  generally  pass  the  title  to  the  thing  pledged,  but  gives 
only  a  lien  to  the  creditor,  while  the  debtor  retains  the  general 
property.^  "  While  the  distinction  between  these  two  forms  of 
security  is  well  defined,  yet,  owing  to  the  haste  with  which 
transactions  are  often  made,  and  to  the  meagreness  or  abbrevia- 
tions of  the  written  papers  which  accompany  them,  it  is  not  easy 

1  Walter  v.  Smith,  5  B.  &  Al.  439  ;  ^  §§  7.17  .  Jones  on  Chattel  Mort- 
Maugham  v.  Sharpe,  17  C.  B.  N.  S.  gages,  §  4  ;  Jones  t;.  Baldwin,  12  Pick. 
443.  (Mass.)  315;  Parshall  v.  Eggart,  52 

2  Halliday  v.  Holgate,  L.  R.  3  Exch.  Barb.  (N.  Y.)  36  7  ;  Robertson  v.  Wil- 
299.  cox,  36   Conn.  426,  430;  Fletcher  v. 

8  §  5.  Howard,  2  Atk.  (Vt.)  115;  Conner  v. 

*  §  22.    It  is  stated  by  Sir  William  Carpenter,  28  Vt.  237  ;    Union  Trust 

Jones  that  "  the  distinction  between  Co.  v.  Rigdon,  93  111.  458;  Lobban  v. 

pledging,  where   possession  is  trans-  Garnett,  9  Dana  (Ky.),  389  ;  Petit  v. 

ferred   to   the  creditor,  and  hypoth-  First  Nat.  Bank,  4  Bush  (Ky.),  334; 

ecation,   where   it  remains    with   the  Hamilton  v.  Wagner,  2  Marsh.  (Ky.) 

debtor,    was    originally    Attic;     but  332;    Sanders  v.  Davis,  13  B.  Mon. 

scarce  any  part  of  the  Athenian  laws  (Ky.)  432;    Luckett  v.  Townsend,  3 

on  this  subject  can  be  gathered  from  Tex.    119;     Evans   v.   Darlington,    5 

the  ancient  orators,  except  what  re-  Blackf.  (Ind.)  320.     So  declared  by 

lates  to  bottomry,  in  the  five  speeches  statute.  Georgia:  Code  1873,  §  2142, 
of  Demosthenes."     Bailments,  84. 

4 


DISTINGUISHED   FROM   A   CHATTEL   MORTGAGE.  [§  5. 

always  to  determine  what  character  is  properly  to  be  attributed 
to  thein."  1 

5.  The  contract  of  pledge  is  in  general  a  contract  wholly 
implied  in  law.  No  written  contract  is  necessary,  and  generally 
none  is  made.  If  there  be  a  written  contract,  it  is  generall}'^  made 
either  to  show  that  the  transaction  is  a  pledge  and  not  a  sale,  or 
to  provide  a  special  mode  for  enforcing  the  lien.^  A  mortgage 
under  the  registry  laws  must  necessarily  be  made  by  a  written 
transfer,  while  a  pledge,  though  it  may  be  constituted  by  writing, 
is  ordinarily  made  by  a  delivery  of  the  property  without  any 
writing,  the  contract  of  the  parties  being  wholly  implied  in  law.^ 
A  delivery  of  property  as  security  for  a  debt  without  a  written 
conveyance  cannot  be  a  mortgage,  but  must  be  a  pledge.* 

But  in  Louisiana  the  contract  of  pledge  of  movable  property, 
other  than  promissory  notes,  bills  of  exchange,  stocks,  or  claims, 
in  order  to  affect  third  persons,  must  be  by  written  act ;  and  the 
amount  of  the  debt  and  the  nature  of  the  thing  pledged  must 
be  mentioned  in  the  act.^  The  Code^  declares  that  the  pawn 
invests  the  creditor  with  the  right  of  causing  his  debt  to  be  satis- 
fied by  privilege  and  in  preference  to  the  other  creditors  of  his 
debtor,  out  of  the  product  of  the  movable,  corporeal  or  incor- 
poreal, which  has  been  thus  burdened.  But  this  privilege  shall 
take  place  against  third  persons  only  in  case  the  pawn  is  proved 
by  an  act  made  either  in  a  public  form  or  under  private  signa- 
ture ;  provided  such  act  has  been  recorded  in  the  manner  re- 
quired by  law  ;  provided,  also,  that  whatever  may  be  in  the  form 
of  the  act,  it  mentions  the  amount  of  the  debt,  as  well  as  the 
species  and  nature  of  the  thing  given  in  pledge,  or  as  a  state- 
ment annexed  thereto  of  its  number,  weight,  and  measure. 

All  pledges  of  movable  property  may  be  made  by  private 

1  Thompson  r.  Dol liver,  132  Mass.  *  Jones  on  Chattel  Mortgages,  §  2; 
103,  104,  per  Devens,  J.                            Arendalew.  Morgan,  5  Sneed  (Tenn.), 

2  Cortelyou   v.   Lansing,   2   Caincs     703. 

Cas.  (N.  y.)  200;  West  v.  Beach,   3  *  Day  v.  Swift,  48  Me.  3G8. 

Cow.  (N.  Y.)  82;  Barrow  v.  Paxton,  "^  De  Blois  v.  Reiss,  32  La.   Ann. 

5  Johns.  (N.Y.)  25H,  200;  M'Lean  v.  58G;  MaUliews   v.   lluthorford,    7   La. 

Walker,  10  lb.  471;  Roinaine  i-.  Van  Ann.  22.");  Martin   v.  Casey,   15   La. 

Allen,  20  N.  Y.  30'J;  Wright  v.  lio.ss,  Ann.  ICi. 

3G  Cal.  414,  429;  Doak  v.  Hank  of  the  »  i^.  civ.  Code  1870,  §§  3157,  3158. 

State,  C  Ired.  (N.  C.)  L.  309. 


§  6.]  THE   NATURE   OF   A   PLEDGE. 

writing,  accompanied  by  actual  delivery  ;  ^  and  the  delivery  of 
property  on  deposit  in  a  warehouse  shall  pass  by  the  private 
assignment  of  the  warehouse  receipt,  so  as  to  authorize  the 
owner  to  pledge  such  property  ;  and  such  pledge  so  made,  with- 
out further  formalities,  shall  be  valid  as  well  against  third  per- 
sons as  against  the  pledgors  thereof,  if  made  in  good  faith.  If  a 
credit  not  negotiable  be  given  in  pledge  notice  of  the  same  must 
be  given  to  the  debtor. 

6.  Though  a  pledge  be  evidenced  by  a  writing  it  need  not 
"be  recorded  if  the  writing  constitute  a  pledge  and  not  a  mort- 
gage. Thus  a  written  instrument  given  by  the  purchaser  of  a 
stock  of  drugs  to  indemnify  a  surety  upon  his  purchase  note,  and 
to  secure  him  for  rent  of  the  premises  where  the  stock  was  kept 
for  sale,  provided  that  a  third  person  as  receiver  should  take  and 
hold  possession  of  the  stock,  furniture,  and  fixtures,  keep  the 
books,  superintend  the  business,  secure  the  money,  and  pay,  at 
the  end  of  each  week,  to  the  surety,  all  the  moneys  received, 
until  his  claims  should  be  satisfied  ;  and  possession  was  taken  by 
such  receiver  accordingly.  It  was  held  that  the  transaction  was 
a  pledge,  and  not  a  mortgage,  and,  therefore,  required  no  regis- 
tration to  render  the  agreement  valid  against  creditors  of  the 
pledgor.2  The  transaction  was  a  pledge  because  the  written  in- 
strument did  not  undertake  to  sell,  transfer,  or  convey  the  stock 
in  question  to  the  surety,  but  merely  to  transfer  the  possession 
of  it  to  a  third  person  for  his  benefit,  to  be  held  till  the  debt 
should  be  discharged,  the  general  property  remaining  all  the 
while  in  the  debtor. 

There  is  nothing  in  an  act  requiring  the  registry  of  mortgages 
of  personal  property  from  which  an  inference  can  be  drawn  that 
a  pledge  must  be  recorded  in  order  to  be  valid.     In  the  absence 

^  The  act  of  pledge  whicli  states  comes   into   the  actual  possession  of 

the  amount  of  the  debt,  and  the  na-  the  pledgee  before  any  conflicting  lien 

ture  of  the  thing  given  in  pledge,  need  attaches   to  it.      Helm   v.  Meyer,   30 

not,  it  seems,  state  that  the  property  La.  Ann.  943. 

was  delivered  to  the  pledgee.     This  2  McCreary  «;.    Haslock,   3    Tenn. 

fact  may  be  proved  by  parol  evidence,  Ch.  13. 

such,  for  instance,  as  the  testimony  And  though  in  writing,  the  instru- 

of  the  pledgee.      Auge  v.  Variol,  31  ment  when  a  pledge  need  not  bear  a 

La.  Ann.  865.     There  is  no  occasion  mortgage  stamp.     Harris  v.  Birch,  9 

to  record  a  pledge  when  the  property  M.  &  W.  591. 

6 


DISTINGUISHED   FROM   A   CHATTEL  MORTGAGE.  [§§  7,  8. 

of  direct  legislation  affecting  pledges,  these  are  to  be  regarded  as 
contracts  at  common  law,  requiring  no  registration  to  give  them 
effect.i 

7.  A  pledge  differs  from  a  mortgage  of  personal  property 
in  being  a  lien  upon  property  and  not  a  legal  title  to  it. 
The  legal  title  to  property  pledged  remains  in  the  pledgor,  while 
a  mortgage  passes  the  legal  title  of  the  property  itself  to  the 
mortgagee,  subject  to  be  revested  in  the  mortgagor,  upon  the 
performance  by  him  of  an  express  condition  subsequent.^ 

It  is  true  that  Lord  Coke  has  said  that  the  pledgee  has  a  prop- 
erty in  the  thing  pledged  ;  ^  and  again  that  he  has  a  property  in 
it,  and  not  a  custody  only.*  But  he  is  understood  to  mean  by 
this  a  special  property,  and  not  a  property  in  the  general  sense 
of  the  word.  Lord  Holt  said  the  pawnee  has  a  special  property 
giving  him  security  for  the  repayment  of  the  debt,  and  power 
to  compel  the  pawnor  to  pay  him.^  Chief  Justice  Fleming  in  an 
early  case  said:^  "There  is  difference  between  a  mortgage  of 
land  and  pledging  of  goods ;  for  the  mortgagee  hath  an  absolute 
interest  in  the  land,  but  the  other  hatli  but  a  special  property  in 
the  goods,  to  detain  them  for  his  security." 

8.  The  form  of  the  transaction  is  therefore  important  in 
determining  its  character.'^  Whenever  there  is  a  conveyance  of 
the  legal  title  to  personal  property  upon  an  express  condition 
subsequent,  whether  contained  in  the  conveyance  or  in  a  separate 
instrument,  the  transaction  is  a  mortgage-     Thus,  if  a  bill  of  sale 

1  Doak  V.   Bank  of    the    State,    6  4G5  ;    Sims  v.    Canfield,   2    Ala.    555; 

Ired.  (N.  C.)  L.  309  ;  Barrett  v.  Cole,  Petitt  v.   First   Nat.    Bank,   4    Bush 

4   Jones   (N.   C.)    L.   40 ;    Thorns   v.  (Ky.),  334  ;  Eastman  v.  Avery,  23  Me. 

Southard,   2   Dana   (Ky.),  475,  479  ;  248;  Cortelyou  v.   Lansing,  2  Caines 

Hamilton  v.  Wagner,  2  Marsh.  (Ky.)  (N.  Y.)  Cases,  200.    Kent,  C.  J.,dur- 

332;    Sanders  v.  Davis,  13  B.  Mon.  ing  an  argument  of  Barrow  v.  Paxton, 

(Ky.)  432.  5  Johns.  2G0,  says  this  case  was  never 

*  Jones  on  Chattel  Mortgages,  84;  decided,  and  that  tlie  opinion,  though 

Jones  V.  Smith,  2  Ves.  Jr.  378  ;  Lick-  written  by  him,  was  never  (iled. 

barrow  v.  Mason,  G  East,  22,  25,  note  ;  «  Co.  Litt.  89  a. 

Brown  v.  Bcment,  8  Johns.  (N.  Y.)  9G;  *  Southcote's  Case,  4  Hop.  8.3  h. 

Browncli  v.  Hawkins,  4  Barb.  (N.  Y.)  ^  Coggs  v.  Bernard,  2  Ld.   Kaym. 

491;  Bates  v.  Wiles,  1  Handy  (Ohio),  909,  91 G,  917. 

532;  Union  Trust  Co.  v.  Iligdon,  93  111.  «  ItatclifT  v.  Davie s,  Cro.  Jac.  244. 

458;  Barfield  v.  Cole,  4  Sneed  (Tenn.),  '  Jones  on  Chattel  Mortgages,  §  8. 

7 


§  8.]  THE   NATURE    OF   A   PLEDGE. 

of  a  horse  be  made,  and  at  the  same  time  a  defeasance  be  given 
back  by  the  purchaser,  engaging  that  on  the  payment  of  the  pur- 
chase price  within  a  specified  time  he  will  redeliver  the  horse, 
the  transaction  is  a  mortgage  and  not  a  pledge  of  the  horse. 

An  instrument  in  writing  which  records  a  debt,  and  declares 
that  the  debtor  does  thereby  deliver  certain  property  to  his  cred- 
itor to  secure  the  debt,  is  a  pledge  and  not  a  mortgage,  because 
there  is  no  transfer  of  the  title  to  the  propert}^  but  only  a  deposit 
of  it.  Although  such  an  instrument  contains  a  covenant  to  war- 
rant and  defend  the  title,  such  as  is  usual  in  a  mortgage,  the 
character  of  the  instrument  is  not  thereby  changed.^  The  cove- 
nant is  not  a  present  conveyance,  but  an  executory  stipulation. 

A  delivery  of  personal  property  by  a  debtor,  in  security  for 
a  debt,  accompanied  by  a  written  agreement,  whereby  the  debtor 
agrees  that  if  he  does  not  pay  the  debt  by  a  certain  time  the  cred- 
itor may  dispose  of  the  property  to  pay  the  debt,  is  a  pledge  and 
not  a  mortgage  ;  for  the  agreement  does  not  show  any  intention 
to  transfer  a  title  to  the  property  absolutely  or  conditionally,  but 
only  to  deliver  the  property  as  security,  with  a  right  in  the  cred- 
itor to  sell  it  if  the  debt  be  not  paid  by  a  certain  time.^  A  de- 
livery of  such  property  to  a  creditor  upon  an  oral  agreement  in 
like  terms  is,  of  course,  a  pledge.^  In  fact,  an  ordinary  pledge 
implies  an  agreement  by  the  parties  in  effect  the  same  as  that 
which  in  the  cases  above  referred  to  the  parties  expressed  in 
their  written  or  verbal  agreements.  Whatever  may  be  the  form 
of  an  express  agreement  upon  which  property  is  delivered  as 
security  for  a  debt,  if  this  be  in  effect  the  same  that  is  implied 
in  an  ordinary  pledge,  the  transaction  is  a  pledge. 

An  agreement  whereby  certain  certificates  of  stock  are  de- 
livered as  collateral  security,  with  a  stipulation  that  if  the  debt 
is  not  paid  at  maturity  the  securities  shall  be  under  the  control 
of  the  holder,  who  is  authorized  to  dispose  of  them,  and  ajDply 
the  proceeds  to  the  credit  of  the  maker,  is  a  pledge  of  the  stocks 
and  not  a  mortgage  ;  for  the  instrument  contains  no  words  of 
sale,  whereby  the  title  to  the  stocks  passes  to  the  creditor.  The 
title  remains  in  the  pledgor,  with  merely  an  authority  in  the 
pledgee  to  sell  in  case  of  default.     The  clause  giving  the  cred- 

1  Hamilton  v.  Wagner,  2  Marsh.  (N.  Y.)  491;  Houser  v.  Kemp,  3  Pa. 
(Ky.)  331.  St.  208. 

2  Brownell   v.   Hawkins,  4    Barb.         »  Eastman  v.  Avery,  23  Me.  248. 

8 


DISTINGUISHED   FROM   A    CHATTEL   MORTGAGE.  [§  9. 

itor  control  of  the  property  after  default  gives  him  no  other  or 
further  right  than  any  pledgee  has  to  sell  the  pledge,  according 
to  law,  to  obtain  payment.^ 

9.  Though  the  title  must  be  conveyed  to  constitute  a 
mortgage,  yet  the  transaction  is  not  necessarily  a  mortgage 
because  the  title  is  conveyed.  There  is  a  qualification  of  the 
general  distinction  between  a  mortgage  and  a  pledge  that  a  mort- 
gage is  a  transfer  of  title,  while  a  pledge  is  a  mere  lien,  with 
respect  to  choses  in  action  ;  for  in  most  cases  these  cannot  be 
pledged  without  transferring  the  title.^  Thus,  in  a  pledge  of 
negotiable  paper,  the  title  necessarily  passes  by  a  delivery  of  the 
paper  if  this  does  not  require  indorsement ;  or  if  it  does  require 
indorsement,  then  by  delivery  after  such  indorsement.  To  make 
the  pledge  an  effectual  security,  it  is  necessary  that  the  pledgee 
should  have  the  legal  title.  The  same  is  true  in  general  as  to 
other  transfers  of  choses  in  action,  such  as  transfers  of  corporate 
stocks.  A  transfer  of  the  title  to  such  incorporeal  property  is 
generally  an  essential  part  of  the  delivery  of  it  in  pledge.  An 
absolute  transfer  of  such  property  as  security  for  a  debt  is  a 
pledge  and  not  a  mortgage.  The  general  property  may  be  re- 
garded as  remaining  in  the  debtor,  though  the  legal  title  be  trans- 
ferred to  the  creditor.  A  transfer  of  such  property  by  an  assign- 
ment which  is  not  in  form  or  substance  a  mortgaere  will  constitute 
a  pledge  of  it.  "  Thus,  a  transfer  of  stock  may  be  absolute,  but 
still,  if  its  object  and  character  are  qualified  and  explained  by  a 
contemporaneous  paper  which  forms  a  part  of  the  contract,  and 
declares  it  to  be  a  deposit  of  the  stock  as  collateral  security  for 
the  payment  of  a  loan,  and  there  be  nothing  in  the  contract  to 
work  a  forfeiture  of  the  right  to  redeem,  or  otherwise  defeat  it, 
except  by  a  lawful  sale  under  the  power  expressly  conferred  in 
the  agreement,  the  transaction  will  be  regarded  as  a  pledge.  It 
is  also  well  said  that  here,  as  in  other  cases,  the  intention  of  the 
parties  and  the  real  effect  of  their  agreement  are  to  be  considered 
and  respected  in  its  enforcement.  The  purport  and  substance  of 
the  contract  determines  whether  it  shall  be  considered  a  mort- 

1  Lewis  y.  Graham,  4  Abb.  (N.  Y.)  2  Cliapters    iii.   and   v.;   Jones   on 

Pr.  lOG;   aflirined  upon  tliis  point  in  Chattel    Mortgafies,    §    4;    Wilson  v. 

Lewis  I'.  Mott,  3G    N.  Y.    395,  400,  Little,  2  N,  Y.  4  13  ;  Dewey  v.  IJow- 

per  Davi.-H,  C.  J.;  and  see  M'Lean  v.  man,  8  Cal.  145,  151. 

Walker,  10  Johns.  (x\.  Y.)  471.  9 


§  10.]  THE  NATURE   OF   A   PLEDGE. 

gage  or  a  pledge."  ^  It  is  true  that  there  may  be  a  mortgage  of 
such  property  ;  but,  to  constitute  a  mortgage  of  it,  the  conveyance 
must  be  made  substantially  in  the  form  of  a  mortgage  ;  that  is,  it 
must  be  a  conveyance  upon  a  condition  or  defeasance  expressed 
in  the  instrument  of  conveyance,  or  by  a  separate  instrument 
which  would  be  construed  as  part  of  the  conveyance.  Thus,  if  a 
policy  of  insurance  be  assigned,  and  the  instrument  of  assign, 
ment  or  a  separate  defeasance  provides  that  the  assignment  shall 
be  null  and  void  upon  the  payment  of  the  debt  secured,  but 
otherwise  shall  continue  in  full  force,  the  transfer  constitutes  a 
mortgage  and  not  a  pledge.  "  The  purport  and  substance  of  the 
contract,  and  the  intention  of  the  parties  as  disclosed  by  the  lan- 
guage they  have  made  use  of  to  express  it,  clearly  indicates  a 
sale  or  mortgage  rather  than  a  pledge."  ^ 

An  assignment  of  a  contract  absolute  in  form,  as  collateral 
security,  is  a  pledge  rather  than  a  mortgage  of  it.  The  fact  that 
the  title  passes  in  form  does  not  make  the  transaction  a  mort- 
gage. A  transfer  of  title  is  necessary  in  order  that  the  creditor 
may  have  full  control  of  the  contract,  and  the  means  of  promptly 
enforcing  it.^ 

10.  If  property  be  deposited  in  the  hands  of  a  third  person 
to  secure  a  creditor,  without  transferring  the  title  to  either  the  one 
or  the  other,  the  transaction  will  be  a  pledge  and  not  a  mortgage.^ 

A  written  contract  to  secure  advances  upon  wheat  by  the  de- 
livery of  warehouse  receipts,  and  to  give  a  lien  not  only  upon  the 
securities  then  in  the  creditor's  hands,  but  also  upon  all  such  as 
might  be  thereafter  delivered  to  him,  with  a  power  of  sale  in  case 
of  default,  followed  by  a  delivery  of  such  receipts,  constitutes  a 
pledge  and  not  a  mortgage  of  the  wheat.  It  is  also  immaterial 
in  this  respect  that  the  receipts  contain  a  clause,  that  in  case  of  a 
flood  —  the  warehouse  being  situated  on  the  bank  of  a  river  —  the 
property  should  be  at  the  risk  of  the  owner.  "  There  was  no 
sale  of  the  property  or  transfer  of  the  title  to  the  plaintiff,  but  a 
deposit  thereof  with  a  warehouseman  as  a  security  for  money 
loaned.    The  term  '  mortgage '  is  not  used  in  the  contract,  neither 

1  Duncran  v.  Mut.  Benefit,  Life  Ins.  ^  Gay  v.  Moss,  34  Cal.  125. 

Co.  38  Md.  242,  253,  per  Miller,  J.  4  McCready  v.  Haslock,  3  Tenn.  Ch. 

2  Dungan  v.  Mut.  Benefit  Life  Ins.  13. 
Co.  supra. 

10 


DISTINGUISHED   FROM  A   CHATTEL   MORTGAGE.       [§§  11,  12. 

does  it  contain  any  language  which  indicates  in  the  least  a  sale  or 
transfer  of  title.  The  stipulation  for  a  lien,  though  unnecessary 
in  case  of  a  pledge,  is  in  harmony  with  the  idea  of  one,  of  which  it 
is  an  essential  feature ;  but  inconsistent  with  the  idea  of  a  mort- 
gage, which  goes  further  and  passes  the  legal  title.  The  power 
of  sale  is  also  consistent  with  the  purpose  to  constitute  a  pledge, 
of  which  it  is  a  legal  incident,  although  not  an  unusual  provision 
in  a  mortgage.  The  issue  and  delivery  of  the  receipt  was  only  a 
mode  of  furnishing  the  plaintiff  with  the  evidence  of  the  deposit 
of  the  pledge  at  the  place  agreed  upon,  and  the  right  to  the  pos- 
session of  the  same,  and  to  dispose  of  it  according  to  the  terms  of 
the  bailment.  But  from  the  nature  of  things  it  was  a  pledge, 
qualified  by  the  situation  and  subject  of  the  contract,  and  the 
conduct  of  the  parties  under  it ;  so  that  the  custody  of  the  prop- 
erty, instead  of  being  actually  or  absolutely  in  the  creditor,  re- 
mained in  the  warehouseman,  subject  to  his  control  for  the  pur- 
poses of  the  contract,  and  while  there  at  the  risk  of  the  '  owners  ' 
in  case  of  flood."  ^ 

11.  An  instrument  which  in  terms  pledges  property  creates 
only  a  lien  upon  it,  and  is  a  pledge,  whereas  one  which  in  terms 
conveys  it  absolutely  as  a  security  is  in  legal  effect  a  mortgage.^ 
Yet  the  use  of  the  word  "  pledge  "  does  not  of  itself  conclusively 
determine  the  character  of  the  transaction ;  for  even  when  the 
word  "  pledge  "  is  used  if  it  is  clear  that  the  intent  of  the  par- 
ties was  that  the  possession  of  the  goods  should  remain  in  the 
debtor,  and  the  possession  does  so  remain,  the  transaction  will  be 
regarded  as  a  mortgage,  and  not  a  pledge.^  "  But  where  the 
word  '  pledge  '  is  used,  and  the  nature  of  the  transaction  is  in  con- 
formity with  the  character  of  a  pledge,  in  this  material  respect, 
that  the  possession  is  to  be  in  the  creditor,  the  word  is  accurately 
used,  and  must  control,  both  as  expressive  of  the  intent  of  the 
parties,  and  of  the  legal  effect  of  their  agreement."  * 

12.  The  use  of  the  term  mortgage  in  an  instrument  whereby 

^  Bank  of  British  Columbia  v.  Mar-  8  J.an^nlon  v.  Bud,  9  Wend.  (N.  Y.) 
shall,  11  Fod.  R.-p.  19,  27  (C.  C.  D.  80;  Ilaskins  v.  Patterson,  E.hn.  Seh 
Oregon,  1882),  j.er  Deady,  J.  Cas.  120;  and  see  Bonsey  v.  Amee,  8 

"  Jones  on  Chattel  Mortga^'es,  §  11;     Biek.  (Mass.)  236. 
Prescott  V.  Brescott,  41  Vt.  131.  *  Ilaskins  v.  Patterson,  supra. 

II 


§  12.]  THE   NATURE   OF   A   PLEDGE. 

security  is  given  does  not  necessarily  make  the  transaction  a 
mortgage.  1 

An  instrument  whereby  a  debtor  acknowledges  his  indebted- 
ness in  a  certain  sum,  "  and  in  guaranty  of  said  sum,  and  all  in- 
terest that  may  accrue  thereon,  I  hereby  give  this  guaranty  mort- 
gage on  the  British  barque  Trait  d' Union,  her  apparel,  ballast, 
chains,  and  all  goods,  furniture,  and  appurtenances  appertaining 
to  said  vessel,  all  being  my  property  as  per  register,"  possession 
being  delivered  to  the  creditor,  is  not  a  mortgage  but  a  pledge.^ 
In  such  case  the  vessel  goes  towards  the  discharge  of  the  debt, 
and  the  pledgee's  possession  is  consistent  with  the  legal  title  of 
the  owner,  and  his  right  to  regain  possession  upon  satisfying  the 
debt.  Expenses  incurred  by  the  pledgee,  for  repairs  upon  the 
vessel  while  in  his  charge,  are  to  be  deducted  from  the  receipts 
for  her  earnings. 

If  a  mortgagee  under  a  mortgage  void  as  against  creditors  takes 
possession  of  the  mortgaged  property,  under  an  agreement  with 
the  debtor  that  he  shall  hold  possession  until  the  debt  is  paid, 
his  title  will  be  good  as  against  subsequent  attachments  and  exe- 
cutions by  other  creditors,  by  virtue  of  the  contract  of  pledge,  and 
of  the  possession  under  it,  though  his  mortgage  be  defective  be- 
cause it  is  not  recorded.^ 

If  property  not  in  existence  or  not  owned  by  the  mortgagor  be 
mortgaged,  the  mortgage  is  invalid  at  law  as  against  third  per- 
sons, who  may  acquire  an  interest  in  it,  or  a  lien  upon  it,  before 
possession  be  delivered  by  the  mortgagor  to  the  mortgagee.  The 
mortgage  is  simply  an  executory  contract  binding  upon  the  par- 
ties, but  void  as  to  third  persons  who  have  no  notice  of  it.  But 
if  the  mortgagee,  before  a  third  person  has  obtained  any  specific 
interest  in  it,  takes  possession  of  the  after-acquired  property,  he 
holds  the  property  by  way  of  pledge,  but  in  the  same  manner  as 
though  the  mortgage  had  been  executed  at  the  time  he  takes 
possession,  and  in  the  same  manner  as  though  he  had  taken  the 
property  under  and  by  virtue  of  a  chattel  mortgage  covering  the 
property.* 

1  Jones  on  Chattel  Mortgages,  §12;  Nash  v.  Norment,  5  Mo.  App.  545; 
Thorns  V.  Southard,  2  Dana  (Ky.),  Jones  on  Chattel  Mortgages,  §§  178, 
475.  167. 

2  Wilson  V.  Knapp,  70  N.  Y.  596.  *  Cameron  v.  Marvin,  26  Kans.  612, 
8  Greeley  v.  Reading,  74  Mo.  309  ;     629. 

12, 


DISTINGUISHED   FROM  A   CHATTEL   MORTGAGE.  [§  13. 

A  pledge  of  goods  by  a  mortgagor  to  the  mortgagee,  when  the 
mortsfag-e  is  fraudulent  acrainst  the  creditors  of  the  former,  be- 
cause  the  mortgage  was  of  a  stock  of  goods  which  the  mortgagor 
was  allowed  to  sell  in  the  usual  course  of  business,  is  effectual,  and 
protects  the  pledgee  against  a  subsequent  attachment  by  a  creditor 
of  the  pledgor,  although  the  pledgee  leaves  the  pledgor  in  pos- 
session under  an  agreement  that  the  latter  shall  sell  the  goods 
and  pay  the  proceeds  to  the  former.^ 

13.  Contracts  substantially  the  same  in  terms  may  be 
construed  either  as  mortgages  or  pledges  under  different 
circumstances,  according  as  the  one  security  or  the  other  will 
best  effectuate  the  intentions  of  the  parties,  and  subserve  the  pur- 
poses of  justice.^  If  it  appear  that  the  parties  intended  that 
their  contract  should  have  the  legal  effect  of  a  mortgage,  the 
fact  that  they  used  words  denoting  a  pledge  will  not  necessarily 
make  it  a  pledge.  Thus,  an  instrument  using  the  words,  "  I 
pledge  and  give  a  lien,"  may  be  construed  to  be  a  mortgage  ;  ^ 
and  a  writing  in  the  following  words,  "  Turned  out  and  delivered 
to  A.  one  white-and-red  cow,  which  he  may  dispose  of  in  four- 
teen days  to  satisfy  an  execution,"  was  held  to  be  a  mortgage 
with  a  power  of  sale,  chiefly  for  the  reason  that  the  cow  was  left 
in  the  possession  of  the  debtor,  and  effect  could  be  given  to  the 
instrument  only  by  regarding  it  a  mortgage.*  An  instrument 
which  would  be  a  pledge  if  possession  of  the  property  be  given 
to  the  creditor  may  be  a  mortgage  if  possession  be  retained  by 
the  debtor.^  Thus,  where  a  conveyance  of  chattels  was  made 
upon  condition  that  it  should  be  void  if  the  grantor  should  hold 
the  grantee  harmless  from  certain  indorsements  made  by  him, 
the  fact   that  there  was  no  delivery  of  the  property  was  held 

1  Pettee  v.  Dustin,  58  N.  H.  309  ;  322,  per  Bakewell,  J.     See  Jones  on 

Janvrin  v.  Fogg,  49  N.  H.  340,  351.  Chattel  Mortgages,  §  14. 

In  New  Hampshire  a  mortgage  of  a  ^  Langdon   v.  Buel,  9   Wend.  (N. 

Btock  of  goods   which   the  mortgagor  Y.)  80. 

may  sell  in  the  usual  course  of  trade  is  *  Atwater   v.    ^Mower,    10   Vt.    75. 

invalid,  unless  it  provides  that  the  pro-  See,  also,   Coty  v.  Barnes,  20  Vt.  78, 

ceeds  of  all  sales  shall  be  paid  to  the  for  a  similar  case, 

mortgagee,   and  they   are   actually  so  ^  Conner  i>.  Carpenter,  28  Vt.  237; 

paid.     But  this  rule  does  not  apply  to  and  see  (ileason  v.  Drew,  \)  Mo.  71),  a 

pledges.  questionable  decision;  D'U'olf  v.  Ilar- 

2  Ward  V.  Sumner,  5  Pick.  (Mass.)  ris,  4  Mason,  515. 

59  ;  Wriglit   v.  Bircher,  5  Mo.   App.  13 


§§  14,  15.]  THE  NATURE   OF   A   PLEDGE. 

to  be  decisive  that  the  transaction  was  a  mortgage  and  not  a 
pledge.  1 

14.  The  law  favors  the  conclusion  that  a  transaction  is 
a  pledge  when  there  is  doubt  whether  it  is  a  pledge  or  a  mort- 
gage. "  Whether  a  transaction  amounts  technicall}^  to  a  mort- 
gage or  a  pledge  is  sometimes  a  nice  question  ;  but  the  ultimate 
object  of  the  inquiry  is  not  so  much  to  name  the  transaction,  as 
to  ascertain  what  was  the  intention  and  understanding  of  the 
pai'ties  to  it ;  and,  therefore,  such  intent,  when  ascertained,  ought 
to  control.  In  the  case  of  a  pure  pledge  the  creditor  takes  the 
possession,  actual  or  constructive,  of  the  goods  ;  while  in  that  of  a 
mortgage  there  is  a  transfer  of  the  title  to  him,  but  not  the  pos- 
session. In  all  cases,  then,  where  personal  property  is  given  as  a 
security  for  a  debt  or  engagement,  accompanied  by  a  change  of 
possession,  either  actual  or  constructive,  the  transaction  better 
comports  with  the  character  of  a  pledge  than  a  mortgage ;  and 
where  the  transaction  imports  nothing  more  than  giving  a  security 
without  a  sale  or  change  of  title  of  the  property',  the  law  favors 
the  conclusion  that  it  was  intended  as  a  pledge  and  not  a  mort- 
gage. But  the  rights  and  obligations  of  the  parties  to  a  pledge 
may  be  modified  indefinitely  by  special  contract  between  them, 
as  that  the  pledge  shall  be  kept,  until  the  default  of  the  pledgor, 
at  some  particular  place  or  by  some  particular  person."  ^ 

15.  A  bill  of  sale  absolute  in  terms,  or  a  receipted  bill  of 
parcels  intended  only  as  collateral  security,  is  a  pledge  if  ac- 
companied by  a  delivery  of  the  property  to  the  creditor.^  A  bill 
of  sale  is  a  mere  bill  of  parcels,  subject  to  explanation  by  parol 
evidence.*  A  bill  of  parcels,  tending  upon  its  face  to  show  an 
absolute  sale,  may  be  shown  by  parol  evidence  to  have  been  ex- 
ecuted by  way  of  security  merely,  and,  therefore,  to  be  a  pledge.^ 

1  Ward  V.  Sumner,  5  Pick.  (Mass.)  dreth,  8  Allen  (Mass.),  167;  Ex  parte 
59.  Fitz,  2  Lowell,  519  ;  Bright  v.  AVagle, 

2  Bank  of  British  Columbia  v.  Mar-     3  Dana  (Ky.),  252,  257. 

shall  (C.  C.  D.Oregon,  1882),  11  Fed.  See   Jones  on  Chattel  Mortgages, 

Rep.  19,  per  Deady,  J.  §  14. 

®  Walker    v.     Staples,     5     Allen         *■  Walker  v.  Staples,  supra;  New- 
(Mass.),  34;  Whitaker  v.  Sumner,  20  ton  v.  Fay,  10  Allen  (Mass.),  505, 
Pick.  (Mass.)  399;  Hazard  v.  Loring,  ^  Jones  v.  Rahilly,  16  Minn.  320; 
10  Cush.  (Mass.)  267;  Kimball  v.  Hil-  Shaw  v.  Wilshire,  65  Me.  485;  Fast- 
is man  v.  Avery,  23  Me.  248. 


DISTINGUISHED   FROM  A   CHATTEL   MORTGAGE.      [§§  16,  17. 

Although  a  delivery  of  goods  be  accompanied  by  an  absolute 
bill  of  sale  the  ti'ansaction  will,  in  equity,  be  regarded  as  a  pledge 
merel}'^,  where  it  is  sliown  that  it  was  intended  as  a  security  for 
a  debt  or  indemnity  for  a  liability  ;  and  it  is  immaterial  that  the 
bill  of  sale  provides  that  the  pledge  shall  be  irredeemable.^ 

But  there  are  cases  where  the  courts  have  regarded  such  an 
absolute  transfer  as  a  mortgage  and  not  a  pledge.  Thus,  in  Ver- 
mont it  has  been  held  that  if  chattels  be  delivered  by  a  debtor  to 
his  creditor  as  security  for  a  debt,  accompanied  by  a  bill  of  sale, 
the  transaction  is  a  mortgage  ;  for  although  the  bill  of  sale  con- 
tain no  defeasance  and  be  not  accompanied  by  a  separate  defeas- 
ance, the  law  gives  effect  to  the  intention  of  the  parties,  and  a 
verbal  defeasance  may  be  proved  or  implied.  The  title  to  the 
property  is  transferred  to  the  creditor,  subject  to  be  defeated  by 
payment  of  the  debt  secured.^ 

16.  A  receipted  bill  of  parcels  of  chattels,  •whicti  on  its  face 
purports  to  be  a  security  for  a  debt,  is  a  pledge  and  not  a 
mortgage.^  "A  bill  of  parcels  given  as  collateral  security  only, 
under  which  the  articles  transferred  are  at  once  delivered,  has 
all  the  characteristics  of  a  pledge.  The  only  property  intended 
to  be  passed  is  the  special  property  wbich  the  pledgee  derives 
from  possession.  The  form  here  used  was  not  that  of  a  mort- 
gage ;  there  was  no  defeasance  or  agreement  to  reconvey  con- 
nected with  or  forming  a  part  of  it."  * 

17.  An  assignment  of  securities  by  a  debtor  to  his  cred- 
itor is  presumed  to  be  as  collateral  security  and  not  in  pay- 
ment of  the  debt,  in  the  absence  of  evidence  tending  to  show  an 
intention  that  the  securities  should  be  applied  in  satisfaction  of 
the  debt,  in  whole  or  in  part.  If  the  debtor  does  not  show  that 
the  assignment  was  so  made  in  satisfaction  of  the  debt,  the  law 
makes  a  positive  inference  that  the  assignment  was  only  as  col- 
lateral security.^  That  the  assignment  is  absolute  in  form  is  of 
no  consequence  as  regards  the  question  of  intention.*' 

1  Morgan  v.  Dod,  3  Colo.  551.  6  Leas  v.  James,  10  S.  &  R.  (Pa.) 

2  Hlo(l;rftt  V.  BloiJgett,  48  Vt.  32.        307,  315;   Peril  v.  Pittfickl,   5  Rawle 
^  Tlioiiipson  i;.  Dollivcr,  132  Mass.     (Pa.),  IGG,  171;  Jones  v.  John.son,  3 

103;   and  see    Shaw  v.  Wilshire,  65  W.   &    S.    (Pa.)    276,    278;    Eby  v. 

Me.  485.  Iloopes,  1  Pennypackur  (Pu.),  175. 

*  Thompson  v.  Dolliver,  supra,  per  '  Eby  v.  Iloopes,  supra. 

Devens,  J.  15 


§  18.]  THE  NATURE    OF   A   PLEDGE. 

18.  A  bill  of  sale  conditional  in  form  is  a  mortgage  and 
not  a  pledge. 1  An  absolute  bill  of  sale  with  a  separate  defeas- 
ance is  in  like  manner  a  mortgage.^  In  like  manner  a  bill  of 
sale,  which  in  express  terms  secures  a  debt  and  authorizes  the 
creditor  to  sell  the  property  after  a  given  time  to  pay  the  debt, 
if  this  be  not  paid  before  that  time,  is  in  legal  effect  a  mortgage.^ 

A  written  assignment  of  stocks  and  bonds  to  a  trustee,  who 
is  empowered  to  sell  at  discretion,  and  required  to  dispose  of 
enough  to  discharge  a  note  due  a  third  person  if  the  interest 
thereon  is  not  paid  at  a  specified  date,  does  not  constitute  a 
pledge,  and  the  assignor  is  not  entitled  to  demand  or  notice 
before  sale.  It  is  manifest  that  the  parties  to  such  agreement 
intended  to  place  the  control  of  the  securities  in  the  trustee,  and 
to  arm  him  with  the  fullest  power  to  dispose  of  them.  The  in- 
terest transferred  to  the  trustee  is  not  a  mere  pledge,  but  some- 
thing more.  The  title  is  vested  in  the  trustee  with  a  power  to 
sell  and  pay  certain  debts,  and  with  a  requirement  to  sell  and  pay 
in  a  certain  contingency.  Such  a  contract  is  to  be  construed 
according  to  its  terms  and  the  circumstances  attending  it.* 
Whether  the  contract  be  a  mortgage  or  not,  it  is  certainly  more 
than  a  pledge,  under  which  the  pledgor  would  be  entitled  to 
notice  to  redeem,  and  notice  of  the  time  and  place  of  sale. 

An  assignment  by  a  debtor  to  his  creditor  of  a  note  secured 
by  a  mortgage,  with  condition  that  upon  default  in  payment  of 
the  principal  debt  the  creditor  should  have  authority  to- collect 
the  collateral  note,  or  to  negotiate  it  for  the  purpose  of  liqui- 
dating the  principal  debt,  vests  the  creditor  with  the  legal  title 
to  the  collateral  note,  and  the  transaction  is  a  mortgage  rather 
than  a  pledge  ;  although  both  the  debtor's  assignment  and  the 
creditor's  receipt  refer  to  the  note  and  mortgage  as  collateral 
security.^ 

1  Wood  V.  Dudley,  8  Vt.  430;  59  Miss.  152.  For  a  case  bearing  a 
Homes  V.  Crane,  2  Pick.  (Mass.)  607;  strong  resemblance  to  tbis,  see  Milli- 
Barrow  v.  Paxton,  5  Jobns.  (N.  Y.)  ken  v.  Dehon,  27  N.  Y.  364,  which, 
258.  if  a  pledge   in  a  legal  sense,  was  de- 

2  Brown  v.  Dement,  8  Jobns.  (N.  clared  to  be  a  peculiar  contract  in- 
Y.)  96;  Clark  v.  Henry,  2  Cow.  eluding  more  tban  a  pledge,  and  con- 
(N.  Y.)  324.  ferring  rights   according   to   the  lan- 

8  Barfield  v.  Cole,  4  Sneed  (Tenn.),     guage  used. 
465.  5  Fraker  v.  Reeve,  36  Wis.  85. 

*  Murdock  v.    Columbus  Ins.    Co. 

16 


DISTINGUISHED    FROM   A    CHATTEL   MORTGAGE,       [§§  19,  20. 

A  contract  to  secure  the  purchase  money  of  a  herd  of  cattle, 
whereby  the  vendor  appoints  an  agent  to  accompany  the  cattle 
and  retain  possession  of  them,  with  power  to  enforce  the  security 
bv  sale,  is  in  the  nature  of  a  mortgage  rather  than  a  pledge,  be- 
cause the  lien,  as  between  the  parties,  is  not  made  to  depend 
altogether  upon  possession,  but  upon  a  contract  which  defines  the 
rights  of  the  parties,  and  provides  for  its  enforcement.^ 

19.  An  absolute  bill  of  sale,  with  an  agreement  that  the 
original  owner  shall  have  the  property  back  again  after  a 
fixed  day,  upon  repaying  the  price,  with  an  additional  sum  for 
trouble  in  trying  to  sell  the  property,  amounts  to  a  pledge,  which 
is  lost  by  giving  possession  to  the  general  owner.^ 

A  contract  by  a  tenant  with  his  landlord,  whereby  he  agreed 
to  cut  the  hay  on  the  premises,  and  to  put  it  into  the  barn  where 
it  should  remain  the  property  of  the  landlord,  unless  the  tenant 
should,  before  a  specified  date,  pay  a  certain  sum  for  the  hay 
less  than  its  value,  when  it  should  become  his  property,  was 
properly  held  to  be  a  pledge.^ 

In  like  manner  a  lease  of  real  estate,  assigned  as  security  for 
a  debt,  is  a  pledge  rather  than  a  mortgage.  The  creditor  has 
the  right  to  collect  the  rents,  and  apply  them  on  the  debt.  The 
creditor's  title  to  the  lease  would  not  become  absolute  in  law 
upon  the  debtor's  default  in  payment  of  the  debt ;  but  the  cred- 
itor has  merely  a  lien  upon  the  rents,  the  ownership  of  the  lease 

remaining  with  the  debtor.* 

ft 

20.  Whether  a  particular  transaction  be  a  pledge  or  a  sale 
and  agreement  to  purchase,  upon  contradictory  evidence  re- 
specting the  terms  of  the  agreement,  is  a  question  for  the  jury, 
and  the  court  will  not  disturb  their  verdict  when  this  is  justified 
by  the  evidence.     Thus,  where  the  transaction  was  the  sale  of  a 

*  Grpgory  i\  Morris,  96  U.  S.  619,  out  notice,  and  creditors  levying  ex- 

per  Waite,  C.  J. ;  Powder  Company  r.  editions  or  attaclinients  ;  and  if  fol- 

Burkliardt,  97  U.S.   110;  Ilauselt  v.  lowed    by    a   delivery    of    possession, 

Harrison,  105  U.  S.  401.     In  the  lat-  before  the  ri<j;htsof  third  persons  have 

ter  case  Mr.  Justice  Matthews  said  :  intervened,  it  is  good  absolutely." 
"  Such  a  lien  is  good  between  the  par-  ^  Kimball    v.     llildreth,   8     Allen 

ties,  without  a  change  of   possession,  (Mass.),  1G7. 

even  though   void    as   against   8ul)se-  ^  Taggart  v.  Packard,  39  Vt.  628. 

qucnt  purchasers  in  good  faith  with-  *  Dewey  v.  Bowman,  8  Cal.  146. 

2  17 


§§  21,  22.]  THE   NATURE    OF   A  PLEDGE. 

watch  for  eighty-two  dollars,  with  an  agreement  that  the  seller 
should  have  it  back  again  upon  the  payment  of  eighty-seven  dol- 
lars, upon  evidence  tending  to  show  that  the  watch  was  really  a 
pledge  for  a  loan,  the  jury  were  entitled  to  find  that  it  was  a 
pledge  and  not  a  sale.^ 

.In  determining  whether  a  transaction  in  the  form  of  a  sale  is 
a  pledge  or  a  sale,  either  absolute  or  conditional,  inadequacy 
of  price  is  a  circumstance  which  indicates  that  it  was  only  a 
pledge.^ 

21.  The  construction  of  a  transaction  evidenced  by  a  writ- 
ing is  a  matter  of  law  for  the  court.  A  writing  reciting  a 
loan  for  which  the  borrower  has  placed  in  the  lender's  hands  cer- 
tain property,  and  providing  that  if  the  loan  should  not  be  repaid 
by  a  certain  time  the  property  should  be  the  lender's  absolutely, 
and  that  the  borrower  would  give  a  bill  of  sale  on  demand,  is  not 
a  conditional  sale  but  a  pledge  or  mortgage  ;  for  the  writing  shows 
that  the  consideration  was  a  loan  of  money,  and  that  the  property 
was  delivered  as  collateral  security.^  And  so  a  writing  whereby 
a  borrower  transfers,  as  collateral  security  for  the  repayment  of 
the  loan,  the  note  of  a  third  person  for  double  the  amount  of  the 
sum  borrowed,  with  a  provision  that  in  case  of  default  in  pay- 
ment the  lender  "  is  to  hold  the  note  as  his  own  property,"  the 
transaction  is  a  pledge  or  mortgage  and  not  a  conditional  sale.* 

That  an  absolute  transfer  of  a  chose  in  action  as  collateral 
security  is  a  pledge,  and  not  a  mortgage,  is  a  conclusion  of  law.^ 

22.  There  may  be  a  statutory  pledge  in  the  same  way  that 
there  may  be  a  statutory  mortgage.  Thus  a  statute  which  pro- 
vides that  a  railroad  company,  which  is  to  receive  bonds  of  a  city 
to  aid  its  construction,  shall  issue  to  the  city  certificates  of  stock 
of  the  company,  for  an  amount  equal  to  the  amount  of  the  bonds 
received,  and  that  the  stock  should  remain  forever  pledged  for 
the  redemption  of  the  bonds,  creates  a  pledge  of  the  stock  to  the 
city.®     The  holders  of  the  bonds  issued  have  primarily  nothing 

1  Hines  v.  Strong,  46  How.  (  N.  Y.)  *  Williamson  v.  Culpepper,  16  Ala. 
Pr.  97.  211. 

2  Bright  w.Wagle,  3  Dana(Ky.),  252.         ^  Gay  v.  Moss,  34  Cal.  125. 

8  Hart  V.  Burton,  7  J.  J.  Marsh.  ^  United  States  v.  New  Orleans, 
(Ky.)  322.  98  U.  S.  381. 

18 


DELIVERY    IS   ESSENTIAL   TO    CREATE   A   PLEDGE.  [§  23. 

to  do  with  the  stock.  They  are  to  look  to  the  obligation  of  the 
city  upon  the  bonds  ;  and  if  they  have  any  claim  to  the  security 
held  by  the  city,  they  are  certainly  not  obliged  to  have  recourse 
to  that  in  the  first  instance.  They  are  not  compelled  to  look  to 
the  security  even  if  the  city  holds  it  for  their  benefit. 

III.  Delivery  is  essential  to  create  a  Pledge. 

23.  To  constitute  a  pledge  the  pledgee  must  take  posses- 
sion ;  and  to  preserve  it  he  must  retain  possession.  An  actual 
delivery  of  property  capable  of  personal  possession  is  essential. 
The  delivery  must  be  such  as  would  be  requisite  to  transfer  the 
property  in  the  same  chattels  in  case  of  a  sale  of  them.^ 

What  constitutes  a  sufficient  delivery  and  possession  is  often  a 
matter  of  considerable  nicety.^  In  many  cases  this  is  a  matter 
of  law  for  the  determination  of  the  court. ^ 

The  modern  civil  law  is  also  very  careful  in  denouncing  the 
danger  of  losing  the  right  of  pledge,  by  parting  with  anything 
like  permanent  or  continued  possession  to  the  pledgor.*  The 
Louisiana  Code,^  adopting  an  article  of  the  Code  Napoleon,^  in 
regard  to  the  possession  of  the  pledge,  provides  :  "  In  no  case 
does  this  privilege  subsist  on  the  pledge  except  when  the  thing 
pledged,  if  it  be  a  corporeal  movable,  or  the  evidence  of  the 
credit,  if  it  be  a  note  or  other  instrument  under  private  signa- 

1  Massachusetts:  Kimball  r.  Hil-  Topping,  72    111.  226.     North  Caro- 

dretb,  8  Allen,  167  ;  Walker  t\  Staples,  Una:  Owens  t;.  Kinsey,  7  Jones,  245; 

5  Allen,  34  ;  Homes  v.  Crane,  2  Pick,  Doak  v.  State  Bank,  6  Jred.  309;  Smith 

607  ;    Bonsey  v.  Amee,  8    Pick.  236.  r.   Sasser,  4   Jones,  43;  Thompson  v. 

Maine:  Collins  v.  Buck,  63  Me.  459  ;  Andrews,  8  lb.  453.    Louisiana:  Lee 

Beeman  v.  Lawton,  37  Me.  544;  Day  v.  Bradlee,  8   Mart.   20;   Hiligsberg's 

V.  Swift,  48  Me.  368.     New  Hamp-  Succession,  1   La.  Ann.  340;  Foltier 

shire:  Walcott  v.  Keith,  22  N.  H.  196;  v.  Schroder,  19  La.  Ann.  17.     Other 

Colby   V.   Cressy,  5  N.  H.  237,   239;  States:    First  Nat.  Bank  v.  Nelson, 

Pinkerton  t;.  Manchester  R.  R.  42  N.  38  Ga.  391;    Combs    v.    Tuchelt,    24 

H.   424,   428.     Tennessee:    Ciisp    v.  Minn.   423;   Seymour  v.   Colburn,  43 

Miller,  5  Ileisk.  69  7;  Johnson  v.  Smith,  Wis.  67. 

11  Humph.  396.    New  York:  Ceas  d.  ^  Martin   v.  Reid,   11    C.   B.  N.  S. 

Bramley,   18   Hun,    187;  Langdon   v.  730;    Donold    v.    Suckling,    L.    R.    1 

Buel,   9'  Wend.   80;    Parshall  v.  Eg-  Q.  B.  585,  687. 

gart,  52  Barb.  367;  Brownell  v.  Haw-  8  story  Bailm.  297. 

kins,  4  Barb.  491.     Illinois:  Silver-  *  Per  Bradley,  J.,  in  Casey  v.  Cav- 

man    w.   McGrath,     10    Bradw.    413;  aroc,  96  U.  S.  467. 

Corbett  v.    Underwood,  83   111.    324;  ^  R.  Civ.  Code  1870,  art.  3162. 

Cooper  V.  Ray,  47  111.  53;  Keiser  v.  «  Art.  2076. 

19 


§§  24,  25.]  THE   NATURE   OF   A   PLEDGE. 

ture,  has  been  actually  put  and  remained  in  the  possession  of  the 
creditor,  or  of  a  third  person  agreed  on  by  the  parties."  And 
the  Louisiana  Code  further  declares  :  ^  "It  is  essential  to  the  con- 
tract of  pledge  that  the  creditor  be  put  in  possession  of  the  thing 
given  to  him  in  pledge,  and  consequently  that  actual  delivery  of 
it  be  made  to  him,  unless  he  has  possession  of  it  already  by  some 
other  right.  But  this  delivery  is  only  necessary  with  respect  to 
corporeal  things  ;  as  to  incorporeal  rights,  such  as  credits,  which 
are  given  in  pledge,  the  delivery  is  mei'ely  fictitious  and  sym- 
bolical." 

The  Code  of  Georgia  ^  declares  that  delivery  of  the  property  is 
essential  to  this  bailment. 

The  Codes  of  California  ^  and  Dakota  Territory  ^  declare  that 
the  lien  of  a  pledge  is  dependent  on  possession,  and  no  pledge  is 
valid  until  the  property  pledged  is  delivered  to  the  pledgee,  or  to 
a  pledge-holder. 

24.  This  requirement  constitutes  another  practical  dis- 
tinction bet^ween  a  mortgage  and  a  pledge  of  personal  prop- 
erty ;  for  while  a  delivery  must  always  accompany  a  pledge,  a 
mortgage  of  goods  is  often  good  without  a  delivery.^ 

No  formal  delivery  is  necessary.  It  is  sufficient  if  the  property 
is  present  so  that  the  pledgee  can  take  possession  of  it,  and  he 
does  take  possession,  and  either  retains  it  himself  or  leaves  it  in 
the  control  of  a  third  person.^ 

25.  Property  already  in  the  hands  of  a  pledgee  as  collateral 
s  ecurity  may  be  pledged  for  a  further  loan  without  any  further 
delivery  of  it.'^  Thus,  the  customer  of  a  bank  being  asked  for 
security  on  his  application  to  have  the  proceeds  of  a  draft  on  a 
distant  place  placed  to  his  credit,  he  replied :  "  The  bank  holds 
all  my  stocks,  and  they  are  security  for  all  my  discount  and  this 

1  R.  Civ.  Code  1870,  art.  3152,  Sel.  Cas.  120;  Haven  v.  Low,  2  N.  H. 
3153.  13;  Ash  v.  Savage,  5  N.  H.  545. 

2  Code  1873,  §  2138.  «  Tibbetts;;.  Flanders,  ISIST.  H.  284. 
8  Codes  and    Stats.  1876,  §    7986;         ">  Dearborn  v.  Union  Nat.  Bank  of 

Civil  Code,  §  2986.  Brunswick,    61   Me.   369;    A\an  Blar- 

*  R.  Codes   1877,  §  1757,  of   Civil  com  v.  Broadway  Bank,  9  Bosw.  (N. 

Code.  Y.)    532;    affirmed    37    N.    Y.   540; 

^  Barrow  v,  Paxton,  5  Johns.  (N.  Brown  v.  Warren,  43  N.  H.  430. 

Y.)  258  ;  Haskins  v.  Patterson,  Edm. 

20 


DELIVERY   IS   ESSENTIAL   TO   CREATE   A   PLEDGE.     [§§  26,  27. 

draft."  Upon  this  he  was  credited  with  the  proceeds  of  the  draft, 
and  it  was  held  that  the  stocks  referred  to  were  a  pledge  for  the 
draft  as  well  as  for  the  discounts  previously  made  on  this  se- 
curity.^ 

26.  A  pledge  of  a  part  of  a  quantity  of  goods  is  not  com- 
plete until  such  part  is  separated  and  set  apart.  Thus,  a  pledge 
of  tliirty  cords  of  bark  in  a  pile  containing  much  more  than  that 
quantit}'^  is  ineffectual  until  the  particular  thirty  cords  have  been 
measured  and  set  apart ;  ^  unless,  perhaps,  the  part  of  the  pile  to 
be  held  in  pledge  be  designated  by  agi-eement  of  the  parties,  so 
that  the  pledgee  could  take  the  number  of  cords  pledged  without 
any  further  act  on  the  part  of  the  pledgor. 

27.  A  mere  agreement  of  parties  is  not  equivalent  to  an 
actual  or  symbolical  delivery.^  The  maker  of  a  note,  to  in- 
duce a  surety  to  continue  his  liability  upon  it  for  a  year,  verbally 
agreed  to  turn  over  to  him  a  horse,  and  that  the  horse  should 
be  the  surety's  property,  and  he  should  have  the  right  to  go  and 
take  it  in  case  the  debtor  did  not  pay  the  note.  The  horse  was 
not  present  at  the  time  of  this  agreement,  nor  was  it  ever  de- 
livered to  the  surety;  but  the  latter  being  compelled  to  pay  the 
note,  went  upon  the  debtor's  premises  and  took  the  horse.  In 
an  action  for  the  recovery  of  the  horse,  it  was  held  that  the 
agreement  conferred  no  lien  upon  it  by  way  of  pledge,  and  no 
title  by  way  of  mortgage.*  A  debtor  being  pressed  for  pay- 
ment agreed  that  certain  molasses  in  his  distillery  should  stand 
as  collateral  security  for   the    debt,   which   was    thereupon    ex- 

1  Van  Blarcom  v.  Broadway  Bank,  my  discounts  and  this  draft,'  he  had 

9  Bosw.  (N.  Y.)  532,  per  Barbour,  J.  at  the  same  time  handed  the  stocks  to 

♦' Very  little  is  necessary  to  constitute  the  bank,  would  that  have  made  the 

a  pledge.    It  is  only  essential  that  the  case  any  stronj^er  ?  " 

property   be,    or    be    placed    by    the  ^  Collins  v.  Buck,  G3  Me.  459. 

owner,  in  the  hands  of  the  creditor  or  *  Cafhn  y.  Karwan,  7  La.  Ann.  221; 

trustee,  with  an  intention  on  the  part  Collins  v.  Buck,  63  Me.  459  ;  Gale  v. 

of  both  parties   that  it  should  be  re-  Ward,  14  Mass.  352;  Tucker  v.  Buf- 

tained  as  security  for  a  certain  debt  fini^ton,  15  Mass.  477;  Keiser  v.  Top- 

or  claim.     In  this  case  the  stocks  were  \n\\\l,,    72   111.    22G  ;    Nisbit    v.   Macon 

already  lield   by  the  itank.     Sujipose  Bank  &  Trust  Co.  12  Fed.  Kep.  <IS6. 

they  hail  not  been,  but  tiiat,  when  the  *  Ceas  v.  Bramlcy,  IH  Ilmi  (N.  Y.), 

deljtor  said,  'The   bank  holds  all  my  187;  and  see   Bceinan  v.  Lawton,  3  7 

Stocks,  and   they  are  security  for  all  Me.  513. 

21 


§§  28,  29.]  THE    NATURE    OF   A   PLEDGE. 

tended  by  time  notes.  He  pointed  out  four  hundred  hogsheads 
of  molasses,  to  be  taken  from  a  particuhir  place  from  a  larger 
quantity  on  storage.  It  was  agreed  that  the  debtor  should  send 
the  rum  to  be  distilled  from  the  molasses  to  the  creditor,  who 
should  sell  it,  and  apply  the  proceeds  to  the  payment  of  the  debt. 
It  was  held  that  there  was  no  pledge  of  the  molasses,  because 
there  was  no  delivery  of  possession.  Retention  of  possession  by 
the  debtor  was  in  fact  a  necessary  part  of  the  agreement.^ 

28.  An  agreement  to  pledge  as  distinguished  from  an  act- 
ual pledge  creates  no  lien  as  against  a  creditor  of  the  pledgor, 
or  as  against  his  assignee  in  bankruptcy.  Equity  will  not  regard 
as  done  that  which  one  has  agreed  to  do,  when  to  so  regard  it 
would  be  to  the  injury  of  third  persons  who  have  acquired  rights 
before  the  execution  of  the  agreement.  An  agreement  to  make  a 
pledge  will  not  avail  as  against  the  pledgor's  assignee  in  bank- 
ruptcy, when  the  pledge  is  not  actually  made  in  pursuance  of  the 
agreement  until  within  four  months  before  the  adjudication  in 
bankruptcy,  and  is  then  made  with  a  view  of  giving  the  pledgee 
a  preference,  and  he  has  reasonable  cause  to  believe  the  pledgor 
to  be  insolvent.^ 

An  executory  contract  to  deliver  certain  shares  of  stock  as  col- 
lateral security  for  a  debt  will  not  be  enforced  by  a  court  of 
equity  after  the  debtor  has  died  insolvent,  when  his  other  cred- 
itors would  be  injured  by  the  enforcement  of  the  contract.^ 

As  between  the  parties  themselves  an  actual  delivery  may  not 
be  necessary.  The  possession  may  be  regarded,  constructively, 
where  the  contract  places  it."* 

29.  An  engagement  to  deliver  property  in  pledge  amounts 
to  nothing  as  security.  The  pledgee  acquires  no  right  of  prop- 
erty until  delivery  is  actually  made.^ 

A  delivery  cannot  be  dispensed  with  by  a  written  agreement 
that  the  party  making  the  pledge  will  hold  it  as  the  bailee  of  the 
pledgee.^ 

1  Smyth  V.  Craig,  3  W.  &  S.  (Pa.)  *  Keiser  v.  Topping;,  72  111.  226. 
14.  ^  Silverman  I'.  McGrath,  10  Bradw. 

2  Nisbit  V.  Macon  Bank  &  Trust  (111.)  413;  Propst  u.  Roseman,  4  Jones 
Co.  12  Ferl.  Rep.  686.  (N.  C),   130;  D'Meza's    Succession, 

8  City  Fire  Ins.  Co.  v.  Olmsted,  33     26  La.  Ann.  35. 
Conn.  476.  «  First  Nat.  Bank  v.    Nelson,  38 

22  Ga.  391. 


DELIVERY   IS   ESSENTIAL   TO   CREATE   A   PLEDGE.       [§§  30,  31. 

The  cashier  of  a  bank,  to  secure  a  creditor  who  had  accom- 
modated it,  sealed  up  a  package  of  its  own  bank  bills  and  left 
them  in  its  vault,  indorsing  thereon  that  the  package  was  in- 
tended as  such  security ;  but  no  entry  of  the  transaction  was  made 
upon  the  books  of  the  bank,  and  the  package  remained  under 
the  absolute  control  of  the  officers  of  the  bank.  Consequently, 
it  was  held  that  the  creditor  acquired  no  legal  or  equitable  lien 
upon  the  bills.^ 

30.  Obviously  a  pledge  of  future  property  is  not  effectual 
until  the  property  comes  into  existence,  and  is  delivered  to 
the  pledgee.  As  to  such  property  there  can  only  be  an  agree- 
ment to  pledge  it,  because  there  can  be  no  delivery  to  make  the 
pledge  effectual.^ 

There  can  be  no  valid  pledge  of  a  runaway  slave,  or  of  an  an- 
chor lost  overboard  in  the  bay,  because  there  can  be  no  delivery 
in  such  case,  though  there  might  be  a  valid  mortgage  of  such 
property.^  Although  there  cannot  be  a  pledge,  technically  speak- 
ing, of  a  chattel  not  in  existence,  there  may  be  a  contract  in  the 
nature  of  an  agreement  to  pledge,  which  will  attach  to  the  chat- 
tel as  soon  as  it  is  produced.  Thus,  where  it  was  stipulated  by 
a  brick-maker  that  the  lessees  of  a  brick-yard  should  retain  the 
bricks  to  be  made  by  him  as  security  for  their  advances  to  the 
brick-maker,  the  bricks  were  held  to  be  pledged  as  fast  as  they 
were  manufactured.* 

31.  The  pledgor  of  future  property  upon  subsequently  ac- 

1  Davenport  v.  City  Bank,  9  Paige  was  a  mere  attempt  to  evade  the  law  ; 

(N.   Y.),    12.      The   transaction   was  for  the  bills  remaining  in  the  control 

evidently   made    for  the    purpose    of  of  the  bank    the   hypothecation    was 

evading  a  statutory   provision    limit-  merely  fictitious. 

ing  the  amount  of  bills  which  a  bank  2  Qittings    v.  Nelson,  86    Til.  591; 

could  issue.    Where  the  bills  of  a  bank  Smithhurst  v.  Edmunds,  14  N.  J.  Ecj. 

are  legally  pledged  for  the  security  of  408. 

a   debt  due  another,  so  as  to  entitle  8  Owens  t-.  Kinsey,  7  Jones  (N.  C), 

him  to  hold  and  use  such  bills  for  his  245. 

indemnity,  they  must   be  considered  *  Macomber    v.    Tarker,    14    Pick, 

as  issued  and  in  circulation  within  the  (Mass.)  497  ;  and    see    Smith    v.  At- 

true  intent  of  the  statute  limiting  such  kins,  18  Vt.  4C1;  Goodenow  v.  Dunn, 

issues,  as  in  such  a  pledge  the  bills  are  21  Me.  86  ;    Ayers  v.   South   Austra- 

no  longer  under  the    control   of   the  lian  Banking  Co.  L.  R.  3  P.  C.  548. 
});iiik.     liul  in  llie  j)rcserit  case  there 

23 


§§  32-34.]  THE   NATURE    OF   A   PLEDGE. 

quiring  it  is  estopped  as  against  his  pledgee,  from  asserting 
that  he  did  not  own  it  when  he  pledged  it.  If  the  pledgor  at  the 
time  of  the  pledge  made  a  delivery  of  the  property,  which  would 
be  effectual  had  the  pledgor  owned  it  at  that  time,  such  delivery 
may  enure  to  the  benefit  of  the  pledgee  upon  the  pledgor's  subse- 
quently acquiring  title,  so  as  to  make  the  pledge  effectual.  Thus, 
a  person  who  had  vei-bally  bargained  for  a  quantity  of  flour  which 
was  then  stored  in  a  warehouse  obtained  a  loan  on  a  pledge  of  it 
by  pointing  it  out,  and  delivering  a  warehouse  receipt  to  the 
lender.  At  that  time  he  had  not  acquired  title  to  the  flour,  but 
afterwards,  upon  paying  the  price  of  the  flour,  did  acquire  title, 
and  received  from  the  vendor  an  order  for  it  upon  the  warehouse- 
man. In  the  mean  time  a  third,  person  having  become  possessed 
of  it  without  right,  the  pledgee  resorted  to  an  action  of  replevin 
to  recover  it.  It  was  held  that  he  was  entitled  to  recover,  on  the 
ground  that  the  pledgor's  subsequent  acquisition  of  title  enured 
to  the  benefit  of  the  pledgee,  and  that  he  having  the  warehouse 
receipt  which  entitled  him  to  possession,  there  was  no  occasion 
for  a  new  delivery  or  any  other  ratification  of  the  pledge.^ 

32.  The  increase  of  property  pledged  is  pledged  with  the 
property ;  ^  for  although  it  does  not  come  into  existence  until 
after  the  pledge  is  made,  it  is  an  incident  of  the  thing  pledged, 
and  with  that  is  in  the  pledgee's  possession. 

33.  That  the  goods  are  unfinished  when  given  in  pledge,  and 
are  to  be  finished  afterwards  at  the  expense  of  the  pledgor,  is  no 
obstacle  to  confirming  and  maintaining  the  pledge.^ 

34.  But  possession  may  be  held  by  a  third  person  for  the 
pledgee,  when  such  person  will  be  considered  as  the  pledgee's 
agent.*  And  so  if  two  or  more  persons  be  jointly  in  possession 
of  the  property  of  another,  the  latter  may  pledge  it  to  one  of  such 

1  Goldsteia  v.  Hort,  30  Cal.  372.  76 ;  and  see  Glover  v.  Austin,  6  Pick. 

2  So  provided  by  Statute  in  Call-     (Mass.)  209. 

fornia  :    Codes    and    Stats.    1876,    §  ^  Brown  v.  Warren,  43  N.  H.  430 

7989;    Civil    Code,  §  2989,     Dakota  Tibbetts  v.  Flanders,   18  N.  H.  285 

Territory:    1877,    §    1760    of    Civil  McCready  ?'.  Haslock,  3  Tenu.  Ch.  13 

Code.    Georgia:  Code  1882,  §  2147,  Johnson  v.  Smith,  11  Humph.  (Tenn.) 

3  Sumner?;,  Hamlet,  12  Pick,  (Mass.)  396;    Weems   v.  Delta  Moss   Co.  33 

La.  Ann.  973. 

24 


DELIVERY    IS   ESSENTIAL   TO   CREATE   A   PLEDGE.  [§  35. 

joint  holders,  and  the  pledge  will  be  good  if  both  or  all  of  them 
have  knowledge  of  the  pledge,  and  assent  to  hold  the  property 
for  the  pledgee.^  A  delivery  of  property  in  pledge  to  one  person 
as  security  for  a  debt  due  him,  and  also  as  security  for  debts  due 
several  other  creditors,  the  terms  of  the  pledge  having  been  as- 
sented to,  is  a  good  pledge  for  all  of  them,  and  gives  them  all  a 
lien  upon  the  property.^ 

In  California^  and  Dakota  Territory*  it  is  provided  by  statute 
that  a  pledgor  and  pledgee  may  agree  upon  a  third  person  with 
whom  to  deposit  the  property  pledged  ;  who,  if  he  accepts  the 
deposit,  is  called  a  pledge-holder.  A  pledge-holder  for  reward 
cannot  exonerate  himself  from  his  undertaking;  and  a  gratuitous 
pledge-holder  can  do  so  only  by  giving  reasonable  notice  to  the 
pledgor  and  pledgee  to  appoint  a  new  pledge-holder,  and,  in  case 
of  their  failure  to  agree,  by  depositing  the  property  pledged  with 
some  impartial  person,  who  will  then  be  entitled  to  a  reasonable 
compensation  for  his  care  of  the  same.  A  pledge-holder  must  en- 
force all  the  rights  of  the  pledgee,  unless  authorized  by  him  to 
waive  them.  A  pledgee,  or  a  pledge-holder  for  reward,  assumes 
the  duties  and  liabilities  of  a  depositary  for  reward.  A  gratuitous 
pledge- holder  assumes  the  duties  and  liabilities  of  a  gratuitous 
depositary. 

35.  A  delivery  of  goods  to  a  workman  or  clerk  employed 
by  the  pledgor,  and  possession  by  such  workman  in  behalf  of 
the  pledgee,  are  sufficient  to  create  and  continue  the  lien.^  Thus, 
a  manufacturer  of  cloth  having  agreed  to  give  a  creditor  security 
on  goods  in  process  of  manufacture,  authorized  the  finisher  em- 
ployed by  him  to  select  and  hold  a  certain  number  of  pieces  of 
cloth  for  the  use  of  the  creditor,  and  the  workman  at  the  creditor's 
request  selected  the  goods  and  removed  them  to  another  room  in 
the  factory,  where  he  worked,  and  gave  notice  of  the  fact  to  the 
manufacturer  and  to  his  own  attendants.  The  selection  and  ap- 
propriation of  the  goods  were  regarded  as  creating  a  lien  as  effec- 
tual as  if  the  manufacturer  himself  had  selected  and  set  them 

1  Brown  v.  Warren,  43  N.  H.  430.  «  Codes  and  Stats.  1876,  §§  7993- 

«  Maconiber    v.    Parker,    14    Pick.     7998. 
(Mass.)  497;  Danforth  v.  Denny,  25         *  R.   Codes  1877,  §§   17G1-17G9  of 
N.  11.  155.  Civ.  Code. 

*  Combs  V.  Tuchelt,  24  Minn.  423. 

25 


§§  36,  37.]  THE  NATURE  OF   A   PLEDGE. 

apart.  Moreover  the  relation  of  the  workman  to  the  manufacturer 
did  not  affect  his  possession  of  the  goods  in  behalf  of  the  creditor 
under  his  special  authority.  To  constitute  an  effectual  possession 
it  was  not  necessary  that  the  goods  should  be  removed  from  the 
premises  of  the  manufacturer.  It  was  sufficient  that  they  were 
so  far  in  the  custody  of  the  workman  that  he  could  at  all  times 
have  legal  control  of  them,  and  give  notice  of  the  lien  to  any  one 
interfering  with  his  custody  of  them,  and  remove  them,  if  neces- 
sary for  the  protection  of  the  pledgee.^ 

36.  A  symbolical  delivery  is  sufficient,  wherever  such  a  de- 
livery would  be  sufficient  in  case  of  a  sale  of  the  same  property. 
Such  a  delivery  may  be  made  of  all  property  incapable  of  manual 
delivery.  Thus  logs  in  a  boom  may  be  effectually  pledged  by 
going  in  sight  of  them  and  pointing  them  out  to  the  pledgee'-^  It 
is  not  necessary  that  the  pledgee  should  place  any  one  in  charge 
over  such  property,  or  that  he  should  immediately  take  any  other 
possession  of  it  than  the  possession  constructively  given. 

If  the  pledgee  is  already  in  possession  of  the  thing  pledged 
though  for  another  purpose,  the  pledge  immediately  becomes 
effectual  without  any  further  delivery.^ 

37.  A  delivery  of  a  document  of  title,  which  serves  to  put 
the  pledgee  in  possession  of  the  goods,  is  equivalent  to  an 
actual  delivery  of  them.^  A  delivery  of  a  bill  of  lading,^  of  a 
warehouse  receipt  or  wharfinger's  certificate,  is  as  effectual  a  de- 
livery of  the  goods  represented  by  such  document  as  would  be  a 
delivery  of  the  goods  by  actual  manual  delivery.^  The  delivery 
of  the  keys  of  a  warehouse  may  be  made  an  effectual  delivery  of 
the  goods  that  are  in  it.'^ 

A  delivery  of  goods  to  a  carrier,  with  intent  on  the  part  of  the 

1  Sumner  v.  Hamlet,  12  Pick.  (Mass.)  ^  Meyerstein  v.  Barber,  36  L.  J.  C. 
76.  P.  48;  S.  C.  affirmed,  lb.  289;  L.  R. 

2  Jewett  V.  Warren,  12  Mass.  300;     2  C.  P.  38,  661. 

Nevan  v.  Roup,  8  Iowa,  207;  Whit-  ^  Dows  v.  Nat.  Exch.  Bank,  91  U. 

ney  v.  Tibbitts,  17  Wis.  359.  S.  618;   First  Nat.  Bank  v.  Kelly,  f>7 

See  Thorndike  v.  Bath,  114  Mass.  N.  Y.  34;    Cartwright  v.  Wilmerding, 

116,  a  case  of  sale.  24  N.  Y.  521. 

3  Brown  v.  Warren,  43  N.  H.  430;  ''  Ryall  v.  RoUe,  1  Atk.  165,  171, 
Parsons  v.  Overniire,  22  111.  58.  per  Burnett,  J.;  Atkinson  v.  Maling, 

4  Ryall  V.  RoUe,  1  Atk.  165,  176.  2  T.  R.  462. 

26 


DELIVERY   IS   ESSENTIAL   TO   CREATE    A   PLEDGE.       [§§  38,  39. 

owner  to  pass  the  property  to  the  consignee,  who  has  made  ad- 
vances upon  them,  is  an  effectual  delivery.  The  carrier  is  then 
the  bailee  of  the  person  to  whom,  and  not  of  the  person  by  whom, 
the  goods  are  sent.  A  delivery  of  a  savings  bank  book  to  a  third 
person,  for  delivery  to  a  creditor  as  security  for  a  debt,  creates  a 
valid  pledge  of  the  book  and  deposit.-^ 

38.  A  pledge  or  contract  for  a  pledge,  ineffectual  for  want 
of  delivery,  may  be  rendered  valid  by  a  subsequent  delivery, 
even  as  against  an  intermediate  creditor  at  large  of  the  pledgor. 
Of  course  such  subsequent  delivery  would  not  prevail  against  a 
creditor  who  had,  between  the  time  of  the  making  of  the  con- 
tract and  taking  possession  under  it,  acquired  a  specific  lien  upon 
the  thing  pledged  by  attachment  or  levy  of  execution.  The  only 
other  obstacle  which  could  prevent  such  a  transaction  from  being 
effectual  would  be  the  intervention  of  fraud.  But  such  a  trans- 
action is  not  fraudulent  in  itself,  and  fraudulent  intent  in  it  is  a 
question  for  the  jury.^ 

39.  A  subsequent  delivery,  if  made  before  other  rights 
have  intervened,  is  effectual.  Thus,  a  merchant  obtained  from 
a  banking  house  a  discount  of  his  note,  having  attached  to  it  a 
receipt  headed  with  his  name,  place  of  business  and  the  date,  in 
the  following  words  :  "  Received  in  store,  for  the  account  of  A. 
(the  bankers),  subject  to  their  order,  the  following  named  prop- 
erty, as  security  to  my  note  given  this  day  for  fourteen  hundred 
and  eighty  dollars,  for  twenty  days  from  date,"  with  a  descrip- 
tion of  the  propert3%  The  receipt  was  signed  by  the  merchant, 
but  the  property  was  not  immediately  delivered  to  the  bankers, 
nor  until  after  the  note  became  due  and  was  dishonored.  Tlie 
merchant  had,  in  the  mean  time,  absconded.  But  one  of  the 
pledgees  went  to  the  store  where  the  property  was,  and  demanded 
possession  of  it  from  the  clerk  in  ciiarge,  and  received  from  the 
latter  the  keys  of  the  building.  An  hour  afterwards  the  prop- 
erty was  seized  by  the  sheriff  upon  an  attachment  in  favor  of  a 
creditor  of  the  pledgor.  In  a  suit  by  the  bankers  against  the 
sheriff  to  recover  the  property,  the  Supreme  Court  held  the 
delivery  of  the  property,  or  rather  the  possession  of  it  gained 

1  Boynton  v.  Payrow,  67  Me.  587.  »  Parshall  v.  Efrgert,  54  N.  Y.  18; 

reversing  S.  C.  52  Harb.  3G7. 
27 


§  40.]  THE   NATURE    OF   A   PLEDGE. 

by  the  pledgees,  was  not  sufficient  as  against  the  attaching  cred- 
itor. But  upon  appeal  this  decision  was  reversed,  and  it  was 
held  that  a  contract  for  a  pledge,  ineffectual  for  want  of  deliver}^, 
may  be  made  valid  by  a  subsequent  delivery  ;  and  that  nothing 
but  the  intervention  of  fraud,  or  the  acquiring  by  a  creditor  of 
a  specific  lien  upon  the  thing  pledged,  will  prevent  the  perfect- 
ing of  the  pledgee's  right.^  "  Certainly  there  is  no  rule  of  law," 
say  the  court,  "  which  requires  a  pledge  in  writing  to  be  filed  as 
a  chattel  mortgage  ;  nor  is  it  consonant  with  any  rules  for  the 
construction  of  statutes  to  borrow  such  a  requirement  as  to 
pledges  from  the  positive  provisions  which,  when  enacted,  were 
introductive  of  a  new  rule,  and  which  declared  unfiled  chattel 
mortgages  absolutely  void  as  against  creditors ;  nor  is  there  any 
■warrant  for  saying  that,  because  a  chattel  mortgage  unfiled  could 
not  be  afterward  filed  with  the  effect  to  cut  off  the  right  of  an 
intermediate  creditor  to  avoid  it  as  under  the  statute  conclusively 
fraudulent,  therefore,  a  pledge  of  undelivered  goods  cannot  be 
made  effectual  against  an  intermediate  creditor  by  delivery  in 
the  absence  of  fraud.  Though  a  contract  of  pledge  should  be 
regarded,  when  unaccompanied  by  delivery,  as  within  the  other 
provisions  of  the  statutes  in  regard  to  conveyances  and  contracts 
as  to  personal  property,  the  question  of  fraud  then  arising  would 
be  a  question  of  fact  upon  which  the  party  would  have  a  right 
to  go  to  the  jury.  In  the  absence  of  any  intermediate  right,  the 
parties  could  perfect  a  written  contract  of  pledge  by  subsequent 
delivery." 

IV.  Possession  is  essential  to  continue  a  Pledge. 

40.  It  is  a  well  settled  principle  that  a  delivery  back  of 
the  possession  of  the  thing  pledged  terminates  the  pledgee's 
title,  unless  such  redelivery  be  for  a  temporary  purpose  only,  or 
be  to  the  pledgor  in  a  new  character,  such  as  special  bailee,  or 
agent;^     Thus,  a  pledgee  of  a  carriage  loses  his  lien  by  permit- 

1  Parshall  v.  Eggert,  54  N.  Y.  18;  Bank  of  Brighton,  132  Mass.  597; 
reversing  S.  C.  52  Barb.  36  7.  Walcott  v.  Keith,  22  N.  H.  196  ;  Look 

2  Ryall  V.  Rolle,  1  Atk.  165;  Reeves  v.  Comstock,  15  AVend.  (N.  Y.)  244  ; 
V.  Capper,  5  Bing.  N.  C.  136,  140,  Fletcher  u.  Howard,  2  Aik.  (Vt.)  115; 
141;  Harper  v.  Godsell,  L.  R.  5  Q.  B.  Day  v.  Swift,  48  Me.  3G8;  Shaw  v. 
422;  Citizens'  Nat.  Bank  v.  Hooper,  Wilshire,  65  Me.  485 ;  Barrett  f.  Cole, 
47  Md.  88;  Kimball  v.  Hildreth,  8  4  Jones  (N.  C.),40;  Smith  y.  Sasser, 
Allen  (Mass.),  167;   Wyeth    v.   Nat.  lb.  43;  Bodenbammer  v.  Newsom,  5 

28 


POSSESSION   IS   ESSENTIAL   TO   CONTINUE   A    PLEDGE.       [§  41. 

tino-  the  pledgor  to  retain  possession,  and  let  it  for  hire  for  his 
own  benefit.  The  pledgor's  possession  in  such  case  is  absolute 
and  unqualified,  although  the  pledgee  restricted  its  use  to  the 
pledgor's  most  careful  drivers.^  But  a  pledgee  of  a  carriage 
would  not  affect  his  lien  by  temporarily  putting  it  into  the 
hands  of  the  pledgor  for  the  purpose  of  having  repairs  made 
upon  it.  The  owner  is  but  a  special  bailee  for  the  creditor  in 
such  case,  and  his  possession  for  this  purpose  does  not  amount  to 
an  interruption  of  the  pledgee's  possession. 

A  temporary  loan  of  a  carriage  by  the  pledgee  to  the  jDledgor 
would  not  invalidate  the  pledge,  and  the  pledgee  may  recover  it 
of  the  pledgor,  if  he  refuses  to  return  it,  by  an  action  of  replevin.^ 
But  where  a  horse  was  pledged,  and  was  immediately  delivered 
back  to  the  owner  upon  an  agreement  that  he  should  keep  and 
use  the  horse  until  the  ensuing  autumn,  when  the  pledgee  was 
to  sell  the  horse  and  pay  himself  out  of  the  proceeds,  it  was 
held  that  the  horse  in  the  owner's  hands  was  liable  to  be  seized 
and  sold  upon  execution  by  a  creditor  of  his.^  And  so  where  a 
horse  taken  in  pledge  was  returned  to  the  pledgor  that  he  might 
have  the  horse  to  use,  it  was  held  that  the  lien  of  the  pledge 
was  thereupon  destroyed,  and  a  purchaser  of  the  horse  from  the 
debtor  would  acquire  a  good  title  as  against  the  pledgee ;  "*  or 
that  a  creditor  of  the  pledgor  might  attach  the  horse  and  hold  it 
against  the  pledgee.^ 

41.  Possession  and  control  of  the  pledge  obtained  by  the 
wrongful  act  of  the  pledgor,  without  the  assent  of  the  pledgee, 
will  not  create  a  forfeiture  of  the  lien,  nor  defeat  his  right  to  re- 
cover damages  for  an  injury  to  the  pledge,  or  for  a  conversion  of 
it.^  The  pledgee  cannot  be  deemed  to  have  released  his  lien 
when  the  possession  of  the  pledge  has  been  obtained  by  the 
pledgor  through  deception  and  false  pretences.'^  A  pledgor  may 
be  guilty  of  stealing  the  pledge  from  the  pledgee,  although  the 
pledgor  is  the  general  owner,  and  the  pledgee  has  no  title  to  it 

lb.  107;   Kii-Ht   Nat.  Bank   v.  Nelson,  3  Barrett  v.  Cole,  4  Jones  (N.  C), 

38  Ga.  3'Jl ;   Geddes  v.  Bennett,  G  La.  40. 

Ann.  51G;  Tieadwell  v.  Davis,  .-34  Cal.  *  Day  v.  Swift,  48  Me.  3G8. 

601.  6  Colby  V.  Cressy,  5  N.  11.  237. 

'Walker     v.     Staples,     5     Allen  «  Waleott  r.  Keith,  22  N.  II.  lOG. 

(Mass.),  34.  '   Bruley  v.  Rose,  57  Iowa,  G;j1. 

'    Cooper  V.  Kay,  4  7  111.  .OS. 

29 


§§  42,  43.]  THE   NATURE   OF   A   PLEDGE. 

but  only  a  special  property.     The  property,  in  an  indictment  for 
larceny,  may  be  laid  in  the  special  owner.^ 

42.  Possession  of  the  property  by  the  pledgor  after  it  is 
pledged  is  not  conclusive  evidence  of  fraud,  but  is  prima  facie 
evidence  of  it.  Such  possession  ma}^  be  explained  and  proved 
to  be  a  possession  by  the  pledgor  as  agent  or  servant  of  the 
pledgee. 2  If  the  circumstances  make  out  a  good  reason  for 
giving  the  custody  and  apparent  control  of  the  property  to  the 
pledgor,  who  undertook  to  act  as  the  pledgee's  agent,  there  may 
not  even  be  any  evidence  of  fraud  ;  and  at  most  the  pledgor's 
possession  will  only  be  evidence  either  that  the  pledge  has  been 
abandoned,  or  that  the  transaction  was  fraudulent.^  Where  a 
wagon-maker  and  a  blacksmith  entered  into  an  arrangement  for 
building  wagons,  whereby  the  former  was  to  do  the  wood-work 
and  the  latter  the  iron-work,  and  also  to  furnish  the  materials  for 
the  wood-work,  and  as  security  therefor  was  to  have  a  lien  upon 
the  wagon-maker's  interest  in  the  wagons  ;  upon  an  attachment  of 
the  wagons  as  the  property  of  the  latter  by  another  creditor,  it 
was  held  that  the  arrangement  constituted  a  pledge  of  the  wagon- 
maker's  interest  in  the  property  to  the  blacksmith,  and  that  when 
wagons  came  into  the  possession  of  the  latter,  he  became  a 
pledgee  in  possession,  and  was  entitled  to  retain  possession  until 
bis  claim  was  paid.*  At  the  time  of  the  attachment  it  appeared 
that  the  pledgee  was  in  exclusive  possession  of  the  wagons, 
which  were  upon  his  own  premises,  and  were  marked  with  his 
name  as  maker.  The  pledgor  was,  however,  at  that  time  en- 
gaged in  painting  one  of  the  wagons.  But  it  was  considered 
that  this  fact,  when  viewed  in  its  relation  to  the  subject,  and  to 
the  attending  circumstances,  did  not  show  any  surrender  on  the 
part  of  the  pledgee  of  the  actual  possession  of  the  property.^ 

43.  A  pledgee  may  employ  the  pledgor  as  his  agent  to  sell 
goods  held  in  pledge,  and  he  does  not  lose  his  lien  by  allowing 
the  pledgor  to  contract  in  his  own  name  for  their  sale,  or  by  de- 

1  Bruley  v.  Rose,  57  Iowa,  651.  see    Rothermel    v.  Marr,  98  Pa.  St. 

2  Macomber   v.   Parker,   14    Pick.     285. 

(Mass.)  49  7.  4  Waldie  v.  Doll,  29  Cal.  555. 

8  Ex  pane  Fitz,  2  Lowell,  519;  and  ^  Waldie  v.  Doll,  sujjra. 

30 


POSSESSION  IS   ESSENTIAL   TO   CONTINUE  A   PLEDGE.      [§  44. 

livering  the  goods  on  his  order  to  the  purchaser.^  By  allowing 
the  pledgor  to  contract  in  his  own  name  the  pledgee  takes  the 
usual  risk  of  such  an  authority  ;  and  if  the  purchaser  has  paid 
the  agent  in  full,  the  pledgee  cannot  reclaim  the  goods  nor  re- 
cover the  price  ;  but  will  be  compelled  to  look  only  to  his  agent 
for  the  proceeds.  But  he  also  retains  the  rights  of  a  principal ; 
and,  by  notifying  the  purchaser  of  these  rights,  he  becomes  en- 
titled to  receive  the  unpaid  purchase  money  in  preference  to  his 
agent.2 

If  the  pledgee  employs  the  owner  to  sell  the  goods  pledged, 
and  the  latter  sells  with  notice  to  the  purchaser  of  the  pledgee's 
lien,  and  moreover  renders  bills  of  sale  in  the  latter's  name,  and 
the  purchaser  agrees  to  pay  the  price  to  him,  it  is  wholly  clear 
that  the  pledgee's  rights  are  fully  protected,  and  in  a  suit  by  the 
pledgee  for  the  price  of  the  goods,^  the  purchaser  cannot  set  off  a 
claim  against  the  owner. 

44.  A  pledgee  does  not  lose  his  lien  by  permitting  the 
pledgor  to  have  possession  of  the  property  for  a  special 
and  limited  purpose,  and  not  merely  for  his  own  use  and 
benefit.'^  Thus  the  master  of  a  ship  having  pledged  his  chro- 
nometer to  the  owners,  they  permitted  him  to  keep  it  on  board 
their  ship,  and  use  it  for  the  purpose  of  navigating  the  ship  for 
a  limited  period  without  losing  their  lien.^  In  like  manner,  if  the 
pledgee  of  a  convertible  railroad  bond  deliver  it  to  the  pledgor 
to  be  exchanged  for  stock  of  the  same  company,  which  is  to  be 
returned  to  the  pledgee  and  substituted  for  the  bond  in  pledge, 
but  the  pledgor  neither  returns  the  bond  nor  the  stock,  he  is 
liable  in  trover  for  the  value  of  the  bond.  The  pledgor  receives 
back  the  bond  in  a  new  character,  namely,  that  of  special  bailee 

1  Thayer  v.  Dwight,  104  Mass.  254;  136;  Langton  v.  Waring,  18  C.  B.  N. 

and  see  Rothermel  t;.  Marr,  98  Pa.  St.  S.  315;    Way    r.  Davidson,  12  Gray 

285.  (Mass.),  465,  466  ;  Bruley  v.  Rose,  57 

*  Per  Wells,  J.,  in  Thayer  r.  Dwight,  Iowa,  651,  654;  Hutton  y.  Arnctt,  51 
»»pra.  111.    198;  Cooper   v.  Ray,  47   III.   53; 

8  Nottebohm  v.  Maas,  3  Robt.  (N.  Black  v.  Bogert,  65  N.  Y.  601;   Col- 

Y.)  249.  lins  V.  Buck,  63  Me.  459.     See,  how- 

*  Martin  v.  Ruid,  11  C.  B.  N.  S.  ever,  Bodcnhainnier  v.  Newsoni,  5 
^3^-  Jones  (N.  C),  107,  not  in  accord  with 

*  Reeves  v.  Capper,  5  Bing.  N.  C-  the  best  authorities. 

31 


§  45.]  THE   NATURE   OF   A   PLEDGE. 

or  agent  of  the  pledgee  to  exchange  it  for  siock,  and  the  posses- 
sion of  the  latter  was  not  thereby  impaired.^ 

And  so  where  the  proprietors  of  a  brick-yard  contracted  it  out 
on  shares  to  a  brick-maker,  agreeing  to  advance  the  money  requi- 
site for  the  making  of  bricks,  and  to  divide  with  him  the  profits, 
after  repayment  of  the  advances,  it  was  further  agreed  that  the 
bricks,  so  fast  as  made,  should  be  pledged  to  the  owners  of  the 
yard  as  security  for  their  advances ;  but  the  brick-maker  was  to 
keep  them  in  his  charge,  and  sell  them  at  retail,  and  as  often 
as  he  got  the  amount  of  a  hundred  dollars  from  the  sales  he  was 
to  deposit  it  in  bank  to  the  credit  of  the  owners.  The  bricks 
were  afterwards  attached  at  the  suit  of  a  creditor  of  the  brick- 
maker  ;  but  the  court  held  that  the  owners  of  the  yard  had  not, 
by  leaving  the  bricks  in  the  hands  of  the  maker,  lost  their  lien 
as  pledgees  of  the  entire  property.  This  limited  authority  to 
sell  at  retail,  in  small  sums,  was  no  waiver  of  the  possession  of 
the  residue  by  the  owners.^ 

45.  A  pledgee  may  maintain  an  action  of  trover  against 
his  pledgor,  for  a  conversion  of  colhiterals  which  tlie  former  has 
returned  to  the  latter  for  a  special  purpose.  Thus  if  a  creditor 
has  redelivered  to  his  debtor  notes  and  mortgages  held  as  collat- 
eral security,  in  order  that  they  may  be  collected  for  the  creditor's 
account,  and  the  debtor  fails  to  return  them  upon  demand,  he  is 
liable  in  trover,  or  in  a  statutory  action,  which  is  a  substitute  for 
trover.^  The  measure  of  damages  in  such  case  is  the  plaintiff's 
interest  in  the  collaterals,  which  cannot  exceed  the  amount  of  the 
debt  secured. 

In  like  manner  the  pledgee  of  a  promissory  note,  who  has  de- 
livered it  back  to  the  pledgor  under  an  agreement  to  return  it,  or 
another  note,  may  maintain  an  action  against  him  for  the  conver- 
sion of  the  note,  although  he  obtained  it  without  fraud.* 

After  the  special  and  temporary  purpose  for  which  a  pledge 

1  Hays  V.  Riddle,  1   Sandf.  (N.  Y.)  which    only    an   action   of   assumpsit 

248.     The  pledgor  contended  that  un-  could  be  maintained. 

der  the  arrangement  between  the  par-  ^  Macoinber    v.    Parker,    14    Pick, 

ties,  whereby  he  was  to  return  stock  (Mass.)  497. 

for   the    bond,   the   creditor's   special  ^  Hurst  v.  Coley  (C.   C.  Dist.   Ga. 

property  was  lost,  and  changed  into  1882),  15  Fed.  Rep.  645. 

a  mere  right  of  action  upon  the  debt-  *  Way     v.    Davidson,       12      Gray 

or's  promise  to  substitute  stock,  upon  (Mass.),  465. 

32 


POSSESSION   IS   ESSENTIAL   TO    CONTINUE   A   PLEDGE.       [§  46. 

has  been  redelivered  to  the  pledgor  has   been  accomplished,  the 
pledgee  may  recover  it  or  its  value  by  action.^ 

46.  Civil  law  makes  practically  the  same  exception  as  the 
common  law,  in  regard  to  a  deliver}^  to  the  pledgor  for  a  tem- 
porary and  special  purpose,  although  in  general  the  civil  law  is 
more  strict  than  the  common  law,  in  requiring  permanent  and 
continued  possession  in  the  pledgee.  Thus  Troplong,  commenting 
upon  the  articles  of  the  Code  Napoleon,  respecting  the  pledgee's 
possession,  says  :  ^  "  Though  the  merchandise  be  deposited  in  the 
creditor's  storehouse,  it  may  still  need  the  care  of  the  debtor. 
Then  it  is  not  forbidden  to  stipulate  that  he  shall  continue  to 
attend  to  it  in  the  interest  of  the  creditor.  The  important  thing 
is,  that  this  clause  does  not  cover  a  fraud.  Aside  from  this,  the 
possession  of  the  creditor  is  not  incompatible  with  a  certain  co- 
operation of  the  debtor,  —  being  for  the  conservation  of  the  thing, 
—  he  still  being  the  owner.  The  creditor  does  not  any  the  less 
continue  exclusive  possessor  of  the  thing.  The  debtor  is  none 
the  less  dispossessed  of  it."  He  instances  the  pledge  of  a  large 
quantity  of  sparkling  Burgundy  which  was  delivered  to  an  agent 
of  the  creditor,  and  deposited  in  a  vault  of  which  the  agent  was 
to  keep  the  keys,  but  it  was  agreed  that  the  debtor  should  give 
the  wine  all  necessary  care.  It  sometimes  happened  that  the 
agent  gave  the  keys  to  the  debtor,  and  once  the  latter  removed 
some  of  the  bottles  of  wine  to  his  own  premises.  The  debtor 
having  failed,  his  assignee  insisted  that  the  pledge  was  null  and 
void,  because  the  debtor  was  not  dispossessed  of  the  wine.  But 
it  was  held  that  there  were  sufficient  reasons  for  the  creditor's 
employing  the  debtor  to  attend  to  the  wine,  and  thiit  the  agent's 
allowing  liiin  to  take  the  keys  was  a  mere  matter  of  convenience, 
to  facilitate  the  operations  of  the  workmen.  But  a  different  re- 
sult was  reached  in  a  case  where  wines  were  pledged  and  the 
debtors  reserved  the  care  of  them,  and  though  stored  in  vaults 
leased  to  the  creditors,  those  vaults  communicated  by  open  doors 
with  other  vaults  of  the  debtors,  where  their  workmen  were  em- 
ployed on  tlie  wines,  and  there  was  nothing  to  indicate  which 
were  pledged  and  which  were  not,  and  nothing  to  {)revent  a  sub- 

>  Roberts  »;.  Wyalt,  2  Taunt.  2(18 ;         ^  Nautisseinent,  No.  309. 
Cooper  V.   Hay,  4  7  111.  b'6]  llultoa  v. 
Ariielt,  r,l  Jil.  \'JH. 

a  83 


§§  47,  48.]  THE  NATURE   OF   A   PLEDGE. 

stitution  of  other  wines ;  so  that  the  debtors  appeared  in  posses- 
sion and  kept  up  their  credit  thereby,  which  they  could  not 
otherwise  have  done. 

47.  A  pledgor  in  possession  can  give  a  good  title  to  a  bona 
fide  purchaser.  If  pledged  property  which  has  been  redelivered 
to  the  pledgor  for  a  special  purpose  be  sold  by  him,  in  violation 
of  the  agreement  under  which  possession  was  redelivered  to  him, 
the  purchaser  having  acted  in  good  faith  can  maintain  his  title 
against  the  pledgee.^  Thus,  the  fact  that  the  pledgor  of  a  horse 
obtained  possession  for  a  special  purpose,  such  as  to  drive  for  a 
few  miles,  to  visit  a  relative,  upon  the  promise  to  return  it  in 
a  day  or  two,  and  while  upon  the  visit  traded  this  horse  for  an- 
other, does  not  enable  the  pledgee  to  recover  the  horse  from  the 
purchaser.- 

The  decisions  in  these  cases  rest  upon  the  general  principle  that 
one  who  voluntarily  allows  personalty  to  pass  into  the  possession 
of  another  is  bound  by  the  fraudulent  acts  of  the  latter,  and  can- 
not reclaim  the  property  in  the  hands  of  an  innocent  purchaser 
for  value  without  notice. 

48.  But  a  pledgor  cannot  defeat  the  lien  of  the  pledgee  by- 
disposing  of  the  property  after  it  has  been  restored  to  the 
latter.  Thus,  if  the  pledge  be  delivered  back  to  the  pledgor  for 
a  temporary  purpose,  and  after  this  is  served  it  be  restored  to 
the  pledgee;  while  it  is  in  his  possession,  the  pledgor  cannot 
mortgage  or  sell  the  property,  except  subject  to  the  interest  of 
the  pledgee.  The  lien  of  a  mortgage  made  under  such  circum- 
stances would  be  subordinate  to  the  interest  of  the  pledgee, 
and  the  mortgagee  could  obtain  possession  only  after  paying 
or  tendering  the  pledgee  the  amount  of  the  debt  secured  after 
its  maturity.^ 

1  Smith  V.  Sasser,  4  Jones  (N.  C),  ^  Bodenhammer  v.  Newsom,  supra. 

43  ;    Bodenhammer  v.  Newsom,  5  lb.  ^  Cooper  v.  Kay,  47  111.  53. 
107  ;     Way    v.    Davidson,     12     Gray  • 

(Mass.),  465,  per  Metcalf,  J. 

34 


CHAPTER  II. 


OF   THE   SUBJECT   MATTER   AND   THE   PARTIES. 


I.  The  subject  matter  in  general,  49-51. 
n.  The  title  of  the  pledgor,  52-05. 
III.  Fledges  by  married  women,  66-68. 


IV.  Pledges  by  partners,  69. 
V.  Pledges  by  corporations,  70-74. 
VI.  Pledges  to  corporations,  75-79. 


I.  The  Subject  Matter  in  general. 

49.  Every  kind  of  property  of  a  personal  nature  may  be 
the  subject  of  a  pledge,  provided  it  be  in  existence,  and  be 
capable  of  actual  or  symbolical  delivery.  Formerly,  ordinary 
goods  and  chattels  formed  the  subject  matter  of  nearly  all 
pledges  ;  but  in  recent  times,  negotiable  instruments,  choses  in 
action,  shares  of  the  stock  of  incorporated  companies,  bills  of 
lading,  and  warehouse  receipts  are  the  subject  matter  of  the 
greater  number  of  transactions  that  come  under  the  designation 
of  pledges.  The  application  of  the  general  principles  of  the  old 
law  of  pledges  to  these  modern  transactions,  in  which  the  paper 
evidences  of  values,  or  the  documentary  titles  to  property,  are 
chiefly  used,  has  wrought  a  new  and  great  development  of  the 
law  of  this  subject ;  and  has  rendered  it  necessary  to  treat  sep- 
arately of  each  of  general  classes  of  these  incorporeal  things  which 
are  now  so  frequently  delivered  in  pledge.  Therefore,  the  chap- 
ters following  this  will  be  devoted  respectively  to  the  considera- 
tion of  pledges  of  negotiable  paper,  of  choses  in  action,  of  cor- 
porate stocks,  of  bills  of  lading,  and  of  warehouse  receipts  ;  while 
the  present  chapter  will  be  devoted  to  the  consideration  of  the 
subject  matter  of  pledges  in  general. 

50.  Property  exempted  by  law  from  attachment  and  levy 
of  execution  may  be  pledged  by  tlio  owner,  who  by  such  act 
waives  the  benefit  of  the  exemption  so  far  as  the  incumbrance 
extends.^     Such  an  exemption  is  no  abridgment  of  tlie  right  of 

1  Frost  i;.  Shaw,  a  Ohio  St.  270  ;  Jones  i;.  Scott,  10  Kans.  33. 


§§  51,  52.]       OF   THE   SUBJECT    MATTER   AND   THE   PARTIES. 

an  owner  of  property  to  deal  with  it  voluntarily  as  he  may  please, 
either  in  selling  or  pledging  it ;  it  is  only  a  protection  which  he 
may  avail  himself  of  as  against  the  adverse  action  of  his  cred- 
itors. Moreover,  the  fact  that  the  owner  has  pledged  property 
exempt  from  execution  does  not  subject  his  interest  in  it  to  ex- 
ecution in  favor  of  a  general  creditor. 

51.  There  may  be  a  statutory  prohibition  of  the  pledging 
of  a  particular  species  of  property.  Thus,  a  pledge  of  a  pen- 
sion certificate  is  wholly  void  whatever  be  the  purpose  for  which 
it  is  made.^  This  prohibition  rests  upon  principles  of  general 
public  policy.  The  Roman  law  prohibited  the  pledging  of  a 
debtor's  necessary  apparel  and  furniture,  beds,  utensils,  and 
tools  ;  his  ploughs,  and  other  utensils  for  tillage  ;  things  esteemed 
sacred  ;  the  benevolence,  or  pension,  or  bounty  of  a  monarch  ; 
and  the  pay  and  emoluments  of  officers  and  soldiers.^  In  Eng- 
lish speaking  countries,  although  such  property  is  generally  ex- 
empt from  attachment  and  execution,  the  debtor  is  left  free  to 
use  it  as  he  may  choose  for  the  purpose  of  obtaining  loans  or  se- 
curing debts. 

II.   The  Title  of  the  Pledgor. 

52.  A  pledgor  by  the  act  of  pledging  impliedly  warrants 
that  he  is  the  general  owner  of  the  property  pledged  ;  ^  and  he 
is  liable  to  the  pledgee  in  damages  if  the  property,  or  any  part  of 
it,  is  taken  from  the  latter  under  a  superior  title.^  The  pledgor 
cannot,  on  the  ground  that  he  has  no  title  to  the  pledge,  recover 
it  in  an  action  against  the  pledgee.  The  pledge  is  valid  between 
the  parties,  and  invalid  only  as  against  the  true  owner  of  the 
property.  But  the  fact  that  the  pledgor  has  no  title  to  the  prop- 
erty, authorizes  the  pledgee  to  deliver  it  to  the  real  owner,  and 

1  Act  of  Congress  July  29,  1848;  It  has  been  decided  on  principles 
R.  S.  §  4745;  Payne  v.  AVoodhall,  6  of  public  policy  that  the  half-pay  of  an 
Duer  (N.  Y.),  169  ;  Moffatt  v.  Van  officer  is  not  assignable  or  attachable. 
Doren,  4  Bosw.  (N.  Y.)  609.  M'Carthy  v.  Goold,  1  Ball  &  B.  387, 

2  Story  Bailm.   §  293.       So,  also,  389;  Lidderdale  v.  Montrose,  4  T.  R. 
the  Code  of  Jewish  law,  bearing  the  248;  Flartyu.  Odium,  3  T.  R.  681. 
name  of  Moses,  forbade  the  giving  in  ^  Goldstein   v.   Hort,  30  Cal.  372; 
pawn  certain  implements  of  husbandry  Mairs  v.  Taylor,  40  Pa.  St.  446. 
and  a  widow's  raiment.     Sir  William  *  Cass    v.    Higenbotam,    27    Hun 
Jones  Bailm.  84.  (N.  Y.),  406. 

36 


THE   TITLE   OF   THE   PLEDGOR.  [§  53. 

exempts  the  pledgee  from  all  liability  to  the  pledgor  for  its  re- 
turn to  him.i  But  it  would  seem  that  the  pledgee  should  not  be 
allowed  to  set  up  the  title  of  a  third  person  against  the  pledgor 
until  such  third  person  has  given  him  authoritj'^  so  to  do,  or  has 
enforced  his  own  superior  right  of  property .^ 

A  pledgor  who  has  no  title  to  the  thing  pledged  at  the  time  he 
pledges  it,  but  afterwards  acquires  title,  cannot  set  up  such  title 
against  his  pledgee.^  Of  course,  if  the  pledgor  has  no  title  to  the 
property,  the  pledgee  will  acquire  no  title  by  the  pledge.  The 
pledgee  can  take  no  greater  right  than  the  pledgor  can  confer.* 

53.  But  it  is  not  indispensable  that  the  pledge  should  be- 
long to  the  pledgor.  One  may  make  a  valid  pledge  of  prop- 
erty belonging  to  another  if  he  has  the  owner's  consent  to  use  it 
in  this  way.^  Such  consent  may  be  either  express  or  implied. 
But  his  authority  to  pledge  cannot  be  inferred  merely  from  his 
possession  of  the  property.  Thus,  a  person  to  whom  a  debtor, 
on  leaving  the  state  on  account  of  his  pecuniary  embarrassments, 
has  given  a  verbal  direction  to  assist  in  the  settlement  of  his  af- 
fairs, has  no  authority  to  transfer  any  property  in  pledge  as 
security  for  a  debt.^ 

In  Louisiana  the  Code  provides  that  a  debtor  may  give  in 
pledge  whatever  belongs  to  him.  But  with  regard  to  those 
things  in  which  he  has  an  ownership  which  may  be  divested,  or 

1  Jones  on  Bailment,  p,  83  ;  Chees-  ful  owner."  Parke,  B.,  said:  "  I  think 
man  v,  Exall,  6  Ex.  341 ;  Jarvis  v.  tLat  a  person  with  whom  property  is 
Rogers,  13  Mass.  105;  S.  C.  15  lb.  pledged  may  set  up  the  jus  tertii,  un- 
389.  In  Cheesman  v.  Exall,  supra,  less  he  has  entered  into  an  engage- 
Pollock,  C.  B.,  said :  "  It  may  be  that  ment  with  the  person  who  pledged  it 
a  person  with  whom  property  is  to  return  the  property  to  him." 
pledged  may  contract  absolutely,  and  ^  Story  Bailm.  §  291  ;  Biildle  v. 
in  all  events,  to  deliver  back  the  prop-  Bond,  6  Best  &  S.  225  ;  Garth  v. 
erty  to  the  pledgor;  in  which  case  I  Howard,  5  Car.  &  P.  346,  350;  Palm- 
agree  that  the  former  would  be  an-  tag  v.  Dontrick,  59  Cal.  154. 
swerable  in  damages  for  the  breach  ^  §  31  j  Goldstein  v.  Hort,  30  Cal. 
of  such  contract,  though  the  damages  372. 

migiit  be  nominal  only.     That,  how-  *  Waller  v.   Hanger,  3  Bulst.   17; 

ever,  is  not  the  ordinary  result  of  the  Hooper  y.  Kamsbottom,4  Campb.  121; 

common  contract.     In  that  case,   the  Cheesman  i'.  Exall,  .s'(//;?7j. 
p<;rson  who  pledges  iin[)Iieilly  under-  ''  Story  Bailm.  §  291. 

takes  that  the  property  pledged  is  his  ^  Swett  v.  Brown,  5   Pick.  (Mass.) 

own;  and  if  it  turns  out  not  to  be  so,  178. 
the  pledgee  may  restore  it  to  the  law-  37 


§  53.]  OF   THE   SUBJECT    MATTER   AND    THE    PARTIES. 

which  is  subjected  to  incumbrance,  he  cannot  confer  on  the  cred- 
itor, by  the  pledge,  any  further  right  than  he  had  himself.  To 
know  whether  the  tiling  given  in  pledge  belonged  to  the  debtor, 
reference  must  be  had  to  the  time  when  the  pawn  was  made. 
If  at  the  time  of  the  contract  the  debtor  had  not  the  ownership 
of  the  thing  pledged,  but  has  acquired  it  since  by  what  title  so- 
ever, his  ownership  shall  relate  back  to  the  time  of  the  contract, 
and  the  pledge  shall  stand  good.^ 

One  person  may  pledge  the  property  of  another,  provided  it  be 
with  the  express  or  tacit  consent  of  the  owner.  But  this  tacit 
consent  must  be  inferred  from  circumstances  so  strong  as  to  leave 
no  doubt  of  the  owner's  intention,  as  if  he  was  present  at  the 
making  of  the  contract,  or  if  he  himself  delivered  to  the  creditor 
the  thing  pawned.  Although  the  property  of  another  cannot 
be  given  in  pledge  without  his  consent,  yet  so  long  as  the  owner 
refrains  from  claiming  it,  the  debtor  who  has  given  it  in  pledge 
cannot  seek  to  have  it  restored  until  his  debt  has  been  entirely 
discharged. 

Tutors  of  minors  and  curators  of  persons  under  interdiction, 
curators  of  vacant  estates  and  of  absent  heirs,  testamentary  ex- 
ecutors, and  other  administrators  named  or  confirmed  bj^  a  judge, 
cannot  give  in  pledge  the  property  confided  to  their  administra- 
tion without  being  expressly  authorized  in  the  manner  prescribed 
by  law. 

An  attorney  cannot  give  in  pledge  the  property  of  his  prin- 
cipal without  the  consent  of  the  latter,  or  an  express  power  to 
that  effect.^  Nevertheless,  where  the  power  of  attorney  con- 
tains a  general  authority  to  mortgage  the  property  of  the  prin- 
cipal, this  power  includes  that  of  giving  it  in  pledge. 

The  property  of  cities  and  other  corporations  can  only  be 
given  in  pledge  according  to  the  rules  and  subject  to  the  restric- 
tions prescribed  on  that  head  by  their  respective  acts  of  incor- 
poration. 

In  California  ^  and  Dakota  Territory  *  it  is  provided  by  statute 
that  one  who  has  allowed  another  to  assume  the  apparent  owner- 

1  R.  Civil  Code  1870,  p.  374,  arts.  «  Codes  and  Stats.  1876,  §  7991; 
3142-3150.     Tliis  is  in  effect  a  state-     Civil  Code,  §  2991. 

rnent  of  the  civil  law  upon  this  part  of  *  R.    Codes  1877,  §    1762    of    Civ. 

the  subject  of  pledges.  Code. 

2  Eeeves  v.  Smith,  1  La.  Ann.  379. 

38 


THE   TITLE   OF  THE   PLEDGOR.  [§§  54-56. 

ship  of  property  for  the  purpose  of  making  any  transfer  of  it,  can- 
not set  up  his  own  title  to  defeat  a  pledge  of  the  property  made 
b}'  the  other  to  a  pledgee  who  received  the  property  in  good 
faith,  in  the  ordinary  course  of  business,  and  for  value. 

54.  Mere  possession  of  a  chattel,  though  indicative  of 
title,  is  not  title  ;  and  one  taking  a  pledge  of  it  is  bound  to 
satisfy  himself  that  the  pledgor  is  the  owner  ;  and  if  he  relies 
solely  upon  the  pledgor's  possession,  he  takes  the  risk  of  having 
to  surrender  the  property  to  the  true  owner.^  Thus,  if  one  puts 
a  chattel  into  the  hands  of  a  mechanic  to  repair  it,  the  latter  can- 
not, by  force  of  his  possession,  though  this  be  lawful,  give  any 
effectual  lien  upon  it  by  way  of  pledge.^ 

If  one  holding  goods  for  safe  keeping  pledges  them  with  intent 
to  convert  the  proceeds  to  his  own  use,  he,  in  effect,  commits  a 
larceny,  and  the  pledgee  acquires  no  title  as  against  the  owner, 
although  he  deals  with  the  pledgor  in  good  faith.^ 

55.  One  in  possession  of  stolen  chattels  can  ordinarily  give 
a  pledgee  no  better  claim  to  them  than  he  himself  had.  Though 
the  pledge  be  taken  in  good  faith  for  a  valuable  consideration, 
the  title  of  the  proper  owner  is  not  affected,  and  he  can  take  the 
property  wherever  he  can  find  it.*  But  there  is  a  well  settled 
distinction  between  the  case  of  chattels  acquired  by  felony,  and 
the  case  of  chattels  acquired  by  fraud,  as  regards  the  title  which 
the  possessor  may  confer.^  It  is  everywhere  admitted  that  the 
title  to  stolen  goods  remains  in  the  proper  owner,  and  continues 
in  him  through  whatever  transfers  of  possession  the  goods  may 
pass,  except  the  sales  be  in  market  overt  under  the  doctrine  of 
such  sales  at  common  law,  which  doctrine,  however,  has  not 
been  adopted  in  this  country. 

56.  But  the  consequences  of  a  sale  or  pledge  of  property 
held  under  a  contract  or  transfer  duly  executed  by  the  proper 
owner,  though  obtained  from  him  by  fraud,  are  very  different. 
The  contract  or  transfer  between  the  immediate  parties  may  be 

1  Atrnew  V.Johnson,  22  Pa.  St.  4  71.  *  Duell  v.  Cudlipp,  1  Ililt.  (N.  Y.) 

2  G;illaher   v.    Cohen,     1     Browne     166. 

(Pa.),  43.  6  Arcndalc    v.   Morgan,    5    Sneed 

8  Ilartop  V.  Iloare,  .3   Alk.  44,  48;     (Tenn.),  70.'J. 
Gottlieb  V.  llartnian,  3  Colo.  53. 

39 


§§  57,  58.]       OF   THE    SUBJECT   MATTER   AND   THE   PARTIES. 

avoided  by  reason  of  the  fraud,  and  tlie  defrauded  vendor  may 
recover  the  property  from  the  fraudulent  purchaser,  or  from 
any  one  who  has  received  it  from  him  with  knowledge  of  the 
fraud.  But  if  the  fraudulent  purchaser  has  sold  or  pledged  the 
property  to  another,  who  has  taken  it  in  good  faith  for  value,  the 
latter  can  hold  it  as  against  the  defrauded  vendor,^  In  other 
words,  while  one  holding  possession  of  goods  without  the  title 
can  confer  upon  a  pledgee  no  rights  which  the  proper  owner  is 
bound  to  respect ;  one  who  holds  not  only  the  possession  but  also 
the  indicia  of  title,  though  acquired  by  fraud,  can  confer  upon  a 
pledgee  acting  in  good  faith  a  lien  which  must  be  respected  by 
.the  defrauded  vendor.  "  As,  for  example,  if  a  man  purchases 
and  obtains  possession  of  a  specific  chattel,  and  pays  for  it  by  a 
fictitious  bill  of  exchange,  or  by  a  check  on  a  banker  where  he 
has  no  funds,  and  then  pledges  the  article  with  a  party  who  ad- 
vances money  upon  it  without  any  knowledge  of  the  fraud,  the 
pledgee  will  have  a  lien  for  his  advances  against  the  vendor  who 
has  been  defrauded.  But  if  the  article  has  been  stolen  and  then 
pledged,  the  pledgee  will  have  no  lien  upon  it  as  against  the 
owner.    ^ 

57.  Possession  alone  of  a  security  negotiable  by  delivery 
before  due  is  presumptive  evidence  of  title ;  ^  but  when  such 
security  is  proven  to  have  been  stolen  or  otherwise  appropriated 
in  fraud  of  the  rights  of  the  owner,  then  the  burden  of  proof  is 
upon  the  possessor  to  show  that  he  took  it  in  good  faith  and  for 
value.  Upon  making  such  proof,  his  title  will  prevail,  unless 
the  true  owner  can  show  bad  faith  on  the  part  of  the  possessor  ; 
that  is,  that  the  possessor  has  notice,  actual  or  constructive,  of 
the  title  of  the  true  owner.^ 

58.  But  one  need  not  be  the  sole  and  absolute  owner  of  a 
chattel  in  order  to  make  pledge  of  it ;  for  one  having  a  partial 
interest  may  pledge  that  interest,  if  he  be  in  a  position  to  make 

^  Parker  v.  Patrick,  5  T.  R.  175;  2  Arendale   v.    Morgan,    5     Sneed 

White  V.  Garden,  10  C.  B.  919,   926;  (Tenn.),  703,  per  McKinney,  J. 

Jarvis  v.  Rogers,  13  Mass.  105;  Mow-  ^  Jarvis  v.  Rogers,   13  Mass.  105  ; 

rey  v.  Walsh,  8  Cow.   (N,  Y.)   238  ;  S.  C.  15  Mass.  389. 

Hoffman  v.  Carow,  22  Wend.  (N.  Y.)  ^  Mercliants'  &  Planters' Nat.  Bank 

285.  V.  Masonic  Hall,  G2  Ga.  271;  Shelton 

V.  French,  33  Conn.  489. 

40 


THE   TITLE    OF   THE   PLEDGOR.  [§§  59,  60. 

an  effectual  delivery  of  the  thing  pledged.  Thus,  by  statute  in 
California^  and  Dakota ^  one  who  has  a  lien  upon  property  may 
pledge  it  to  the  extent  of  his  lien.  But  inasmuch  as  the  con- 
tinuance of  a  lien  depends  upon  the  continued  possession  of  the 
person  claiming  it,  it  would  follow  that,  in  order  to  pledge  such 
interest  at  common  law,  the  person  claiming  the  lien  must  em- 
power his  pledgee  to  continue  his  possession  as  his  servant  for 
the  preservation  of  the  lien.^  If  an  agent  or  broker  having  a 
lien  on  goods  for  a  general  balance  tortiously  pledges  them  as  his 
own  to  secure  his  own  debt,  his  pledgee  cannot  hold  them  as 
against  the  principal  for  even  the  amount  of  the  lien  which  the 
agent  had  upon  the  goods.* 

A  mortgagor  left  in  possession  of  the  mortgaged  goods,  under  a 
mortgage  not  recorded,  may  effectually  pledge  them  to  one  who 
is  ignorant  of  the  mortgage,  and  has  no  cause  of  suspicion  or  in- 
quiry as  to  the  pledgor's  title.^  If  the  mortgage  be  recorded  the 
mortgagor  can  pledge  his  equitable  interest  or  right  to  redeem. 

59.  One  having  only  a  life  interest  in  a  chattel  can  pledge 
that  interest,  but  only  that  interest.  Thus  certain  plate  was  left 
to  trustees  for  the  use  of  the  testator's  wife  during  her  widowhood, 
and  she  pledged  it  for  value  to  one  who  had  no  notice  of  her 
limited  interest.  At  her  death  the  pledgee  refusing  to  deliver 
the  plate  to  the  trustees,  who  claimed  it  on  behalf  of  the  re- 
mainder-man, it  was  held  in  an  action  by  them  that  the  pledgee 
had  no  valid  title  after  the  death  of  the  tenant  for  life,  and  that 
he  must  restore  the  plate.^ 

60.  When  the  pledgor  has  only  a  limited  interest  in  the 
thing  pledged,  the  pledgee  cannot,  upon  default,  sell  the 
property  ;  but  if  he  can  sell  any  right  or  title  to  it,  it  is  only 
the  right  or  title  that  he  derived  from  the  pledgor.  "The  right 
of  a  pledgee  to  sell  the  property  pledged,  on  giving  reasonable 
and  proper  notice  to  tlui  pledgor  of  the  time  and  place  of  sale, 
depends  upon  circumstances.     Sometimes  the  pledgor  has  only  a 

^  Codes  and    Stats.   1876,  §    7990;  *  M'Combie  r.  Davics,  ,s»y?ra. 

Civ.  Code,  §  2990.  s  Lewis  v.  Stevenson,   2   Hall   (N. 

^  R.    Codes    1877,  §   1761    of    Civ.  Y.),  63. 

Code.  6  lloare  i;.  Parker,  2  T.  R.  376. 

'  M'Conibie  v.  Davies,  7  East,  5. 

41 


§§  61,  62.]   OF  THE  SUBJECT  MATTER  AND  THE  PARTIES. 

limited  title  to  tbe  property  pledged.  He  may  have  only  an 
interest  for  life,  or  for  a  term  of  years,  or  lie  may  have  simply  a 
lien,  or  a  right  by  former  pledge ;  still  he  may  pledge  the  prop- 
erty to  the  extent  of  his  interest.  But  the  pledgee  in  all  such 
cases  has  no  right  to  sell  the  property  on  the  non-fulfilment  of 
the  contract,  although  he  may  pursue  the  proper  course  for  the 
purpose,  for  the  pledgor  has  no  such  right  to  confer.  The  pledgee 
must  content  himself  in  such  cases  with  holding  the  possession  of 
the  property  till  his  debt  is  paid,  or  the  interest  of  his  pledgor  in 
the  property  has  expired."  ^ 

61.  An  administrator  may  pledge  personal  property  be- 
longing to  the  estate,  and  the  pledgee  dealing  with  him  in  good 
faith  will  obtain  a  good  title,  for  the  legal  title  to  such  property 
is  in  the  administrator,  and  the  purposes  of  the  estate  may  re- 
quire such  a  use  of  it.  But  if  the  administrator  violates  his  trust 
in  so  dealing  with  the  property,  and  the  pledgee  has  knowledge 
of  such  violation,  his  title  may  be  impeached  ;  and  he  has  knowl- 
edge of  a  misapplication  of  the  trust  property  when  the  admin- 
istrator uses  it  to  secure  his  own  debt  to  the  pledgee.^ 

62.  A  vendor  in  possession  of  property  may  pledge  it, 
though  he  is  under  contract  to  deliver  it  to  a  purchaser  upon  the 
payment  of  the  purchase  money.  Upon  the  payment  of  the  debt 
for  which  the  pledge  is  made  in  such  case,  the  pledgee  is  bound 
to  deliver  the  proj)erty  back  to  the  pledgor  ;  and  he  cannot  law- 
fully deliver  the  goods  to  any  one  else,  as,  for  instance,  to  one 
who  claims  to  be  a  purchaser  from  Ihe  pledgor,  unless  the  latter 
so  direct."  The  pledgor  is  entitled  to  a  return  of  the  goods,  and 
a  delivery  of  them  to  any  one  else,  though  he  has  a  contract  for 
their  purchase,  may  defeat  the  pledgor's  rights,  and  deprive  him 
of  his  security  for  the  purchase  money.  Not  only  is  the  pledgee 
bound  to  return  the  goods  to  the  pledgor,  but  he  is  equally  bound 
to  defend  the  interests  of  the  latter  in  an  action  brought  by  a 
stranger  to  recover  the  property,  when  he  is  not  entitled  to  the 
possession  of  it.^ 

^Robertson  v.  Wilcox,  36  Conn.  Armistead,  6  lb.  74;  Tyrrell  ?;.  Morris, 
426,  430,  per  Park,  J.  1  D.  &  B.  (N.  C.)  Eq.  559,  560. 

2  See  Chapter  XII.;  Wilson  v.  Dos-  ^  Dean  v.  Lawbam,  7  Oregon,  422; 
ter,  7  Ired.  (N.  C.)  Eq.  231;  Gray  v.     Lyle  v.  Barker,  5  Binn.  (Pa.)  457. 

*  Pomeroy     v.     Smith,     17     Pick, 
'i-j  (Mass.)  85;  Dean  v.  Lawbam,  sujn-a. 


THE   TITLE   OF   THE   PLEDGOR.  [§§  63,  64. 

63.  A  vendee  in  possession  of  chattels  under  a  conditional 
sale  cannot  make  a  valid  pledge  of  them,  because  he  is  not  the 
owner  until  he  has  complied  with  the  condition.  But  if  the  sale 
be  subject  to  a  statute,  such  as  exists  in  several  states,  which  re- 
quires contracts  for  conditional  sales  to  be  recorded  in  order  to  be 
valid  against  creditors  and  subsequent  purchasers  without  notice, 
the  vendee,  holding  possession  under  a  contract  of  conditional  sale 
not  recorded,  can  convey  a  right  by  pledge  superior  to  that  of  the 
vendor.  Thus,  a  manufacturer  in  Pennsylvania  leased  a  locomo- 
tive to  a  railroad  corporation  in  Iowa,  where  such  a  statute  was 
in  force,  by  an  instrument  in  writing  not  recorded,  for  a  sum  equal 
to  its  value,  to  be  paid  in  nine  months,  whereupon  a  bill  of  sale 
should  be  executed ;  otherwise  the  manufacturer  had  the  right 
to  repossess  the  locomotive.  The  locomotive  was  taken  to  Iowa, 
and  was  there  pledged  by  the  railroad  corporation  as  security  for 
a  loan.  It  was  held  that  the  pledgee's  right  was  superior  to  that 
of  the  manufacturer.^ 

But  the  general  rule  of  law,  when  not  affected  by  statutory 
provisions,  is,  that  while  an  agreement  between  the  vendor  and 
vendee  of  personal  property  that  the  title  shall  not  pass  until  the 
property  is  paid  for,  is  legal  and  binding  between  the  parties 
themselves,  though  possession  of  the  property  is  delivered  to  the 
vendee ;  yet  as  to  purchasers  and  creditors  of  the  vendee  such 
agreement  is  void,  and  as  to  them  the  property  must  be  consid- 
ered as  belonging  to  the  vendee  in  possession.  And  if  the  ven- 
dee in  possession  pledges  the  property  to  one  who  loans  him 
money  hond  fide,  without  notice,  the  latter  will  acquire  a  valid 
and  binding  lien  on  the  property  for  the  payment  of  the  money 
loaned,  and  he  will  be  protected  against  the  vendor's  claim  for 
the  purchase  money.  A  notice  of  defective  title  in  the  pledgor 
comes  too  late  to  affect  the  pledgee  after  he  has  advanced  money 
secured  by  the  pledge.  To  be  operative,  such  notice  should  be 
prior  to  the  payment  of  the  money .^ 

64.  A  common  carrier  or  other  bailee  of  goods  cannot 
pledge  them.     Thus  where  carriers  on  their  way  purchased  a 

1  Pittsbiirf;  Looomotive  &  Car  GO  III.  100  ;  Western  Union  R.  U.  Co. 
WorlcH  u.  State  Nut.  Hank,  21  Int.  i'.  Waj^ner,  C)  111.  1  97  ;  Ohio  and  Miss. 
Rev.  Ree.  .'MfJ.  K.  K.  Co.  v.  Kerr,  49  III.  458. 

2  Micb.  Cent.  R.  R.  Co.  v.  Phillips, 

43 


§§  65,  QQ.I      OF   THE   SUBJECT   MATTER  AND   THE   PARTIES. 

boat  in  order  to  ascend  a  river  to  the  place  of  destination  of  their 
goods,  and  deposited,  as  security  for  the  boat,  a  portion  of  the 
goods,  the  owner  was  held  to  be  entitled  to  recover  against  the 
pledgee.!  A  master  of  a  ship  may,  however,  hypothecate  a  por- 
tion of  his  cargo,  when  this  is  necessary  to  enable  him  to  con- 
tinue the  voyage  ;  ^  but  in  doing  this  he  is  regarded,  under  the 
general  maritime  law,  as  acting  as  an  authorized  agent  over  the 
cargo,  and  not  in  the  capacity  of  a  carrier.  Moreover,  to  justify 
such  hypothecation  the  necessity  must  be  exti-emely  clear.  It 
must  appear  that  the  vessel  was  in  a  foreign  port ;  that  the 
voyage  was  unfinished  ;  and  that  the  pledge  was  indispensable  to 
enable  the  ship  to  complete  the  voyage.^ 

65.  One  joint  owner  of  a  chattel,  though  in  possession  of 
it,  cannot  pledge  the  interest  of  his  co-o-wner  without  his  con- 
sent, and  the  fact  that  the  pledgee  acts  upon  the  supposition  that 
he  is  acquiring  a  lien  vipon  the  entire  interest  does  not  avail  to 
give  him  such  a  lien.^  One  joint  owner  of  a  chattel  may,  how- 
ever, pledge  his  own  interest  without  the  consent  of  his  co-owner, 
and  if  the  pledgor  had  the  right  of  possession  the  pledgee  will 
take  the  same  right  of  possession  as  against  the  other  owner ; 
and  in  such  case  the  latter  cannot  maintain  replevin  against  the 
pledgee  for  the  thing  pledged ;  nor  can  both  joint  owners  jointly 
maintain  the  action  without  paying  the  debt  secured.^ 

One  of  two  joint  owners  of  a  chattel,  both  being  in  possession, 
may  pledge  his  share  to  the  other  joint  owner,  and  he,  by  con- 
tinuing in  possession  and  control,  has  a  valid  pledge.'' 

III.  Pledges  by  Married   Women. 

QQ.  Married  women,  under  the  statutes  now  in  force  in 
most  of  the  states  in  regard  to  their  property  rights,  can  make 
contracts  affecting  their  separate  personal  property  as   freely  as 

1  Kitchell   V.   Vanadar,    1    Blackf.  *  pj-ans  u.  Young,  24  Iowa,  375. 
(Ind.)  356.  s  Frans  v.  Young,  sujora,  Chief  Jus- 

2  Freeman  v.  East  India  Co.  1  Dow.  tice  Dillon  delivering  tlie  decision  and 
&  Ry.   234;   S.   C.  10  B.  &  Al.   617,  citing  numerous  authorities. 

621,  per  Bayley,  J.  ;  The  Gratitudine,  See  Jones  on  Chattel  Mortgages,  §§ 

3  Rob.  Adm.  240,  258 ;  The  Fortitude,  47,  48. 

3  Sumn.  228;  United  Ins.  Co.  v.  Scott,  ^  Thorns  v.  Southard,  2  Dana  (Ky.), 

1  Johns.  (N.  Y.)  106,111.  475,  479. 

3  Marziou  v.  Pioche,  8  Cal.  522. 

44 


PLEDGES   BY    MARRIED   WOMEN.  [§  67. 

single  women  can.  The  statutes  of  the  several  states  are  not  the 
same,  and  do  not  confer  the  same  powers  of  independent  control ; 
but  generalh^  they  enable  a  married  woman  to  hold  and  dispose 
of  her  personal  property  in  the  same  manner  as  if  she  were  sole.^ 
She  may  make  a  valid  pledge  of  such  property  to  secure  a  debt 
of  her  own,  her  husband's  debt,  or  the  debt  of  another  person. 
She  may  pledge  her  stock  in  a  corporation  to  secure  such  a  debt, 
and  may  confer  upon  the  pledgee  a  valid  power  of  sale  without 
notice  upon  a  default  in  payment  of  the  debt  secured.^  A  certifi- 
cate of  shares  standing  in  the  name  of  a  married  woman  is  evi- 
dence of  her  absolute  ownership  of  it ;  and  in  case  there  is  noth- 
ing in  it  or  connected  with  it  indicating  a  trust  in  favor  of 
another  person,  one  loaning  money  upon  her  pledge  of  the  shares 
as  security  is  warranted  in  making  the  loan  upon  the  assumption 
of  such  ownership.  He  is  not  bound  to  inquire  and  ascertain 
how  she  obtained  it.^ 

67,  A  married  woman  who  has  pledged,  or  allowed  her 
husband  to  pledge,  her  separate  property  for  his  own  benefit, 
is  entitled  to  have  the  pledge  redeemed  by  him  or  out  of  his 
estate.  If  her  husband  become  insane  and  his  estate  is  ample, 
she  may  require  his  guardian  to  redeem  her  jewelry  and  other 
articles  pawned  to  pay  his  personal  expenses.^ 

A  pledge  of  a  married  woman's  personal  property  made  by  her 
husband  without  her  authority  is  of  course  not  binding  upon 
her ;  but  such  a  pledge  becomes  effectual  upon  her  subsequent 
ratification  of  it.^ 

If  a  married  woman  authorize  her  husband  to  pledge  a  chattel 
belonging  to  her,  the  presumption  is  that  his  authority  svas  to 
pledge  it  in  the  usual  manner  of  making  pledges  ;  and  mere 
authority  to  raise  money  on  the  property  does  not  authorize  him 
to  consent  to  a  sale  without  notice  upon  default,  or  to  consent  to 
a  sale  in  any  manner  except  that  specified  by  statute." 

^  Upon  the  general  powers  of  married  »  Lcitch  r.  Wells,  48  N.  Y.  585. 

women  at  common  law  and  by  statute  4  Ilanall's  Case,  31  N.  J.  Eq.  101. 

to  cliarge  their  own  pnpertyfor  their  ^  Merrill  i".  Parker,  112  Mass.  250. 

own  delits,  or  the  debts   of  others,  see  <>  Van    Arsdale   v.  Joiner,  44    Ga. 

1  Jones  on  Mortgaj;es,  §§  106-118.  173. 

"  Dando's  Aj.p.  'Ji  Pa.  St.  7G. 

45 


§§  68,  69.]       OF   THE   SUBJECT    MATTER   AND    THE   PARTIES. 

The  wife  of  a  debtor  has  no  implied  authority,  in  his  absence, 
to  pledge  any  property  of  his  for  the  payment  of  his  debt.^ 

68.  A  married  woman  may  pledge  a  policy  of  insurance 
for  her  benefit  upon  the  life  of  her  husband  as  security  for  a 
debt  of  his.2  It  has  been  objected  that  such  a  policy  cannot  be 
transferred  by  a  married  woman,  even  with  the  consent  of  her 
husband,  because  the  fund  itself,  not  being  payable  in  the  life- 
time of  the  husband,  is  a  reversionary  interest  belonging  to  the 
wife,  which  cannot  be  lawfully  transferred  by  the  husband  and 
wife  so  as  to  bar  her  right  of  survivorship.  But  the  principle 
involved  in  this  objection  has  no  application,  where  the  rever- 
sionary interest  secured  to  the  wife  is  her  sole  and  separate  prop- 
erty ;  and  therefore  her  assignment  of  such  a  policy,  as  collateral 
security  for  her  husband's  indebtedness,  is  valid.^ 

IV.  Pledges  hy  Partners. 

69.  One  member  of  a  copartnership  may  make  a  valid 
pledge  of  a  chose  in  action,  or  other  property  of  the  firm,  to 
secure  a  partnership  debt.^  A  sole  surviving  partner  may  also 
transfer  in  pledge  a  chose  in  action,  or  other  personal  property  of 
the  partnership,  to  secure  a  partnership  debt,  and  the  pledge,  if 
made  in  good  faith,  will  be  effectual  against  other  creditors  of 
the  partnership,  as  well  as  against  the  representatives  of  the  de- 
ceased partner.^ 

A  partner  intrusted  with  winding  up  the  business  of  his  firm, 
and  authorized  to  trade  any  part  of  the  assets,  and  to  do  all  and 
everything  he  might  deem  expedient  for  settling  its  affairs,  may 
pledge  notes  belonging  to  the  firm,  to  secure  not  only  a  loan  ob- 
tained to  meet  a  jjartnership  liability,  but  also  a  prior  indebted- 
ness of  the  firm  to  the  same  creditor.*^ 

But  under  the  Code  of  Louisiana'  a  partner  cannot  for  his  own 
concerns  give  in  pledge   the   partnership   property  without   the 

1  Swett  V.  Brown,  5  Pick.  (Mass.)  ^  Galway  v.  Fullerton,  17  N.J.  Eq. 
178,  389,    See  Jones  on  Chattel  Mortgages, 

2  Collins  V.  Dawley,  4   Colo.  138  ;     §§  45,  46. 

Pomeroy  v.  Manhattan  Life  Ins,  Co.         ^  Bohler   v.  Tappan,  1   Fed.    Eep. 

40  111.  398.  469. 

3  De  Ronge  v.  Elliott,  23  N.  J,  Eq.         ^  s„-,itii  y.  Dennison,  101  111.  531. 
486,     And  see  Charter  Oak  Life  Ins,         ^  R.  Civil  Code  1870,  p.  374,  art. 
Co.  V.  Brant,  47  Mo.  419,  351. 

46 


PLEDGES  BY   CORPORATIONS.  [§§  70,  71. 

consent  of  bis  associates.  He  cannot  do  it  even  for  the  partner- 
ship concerns  without  such  consent,  unless  he  be  vested  with  the 
management  of  the  copartnership.  This  rule  admits  of  excep- 
tion in  matters  of  commercial  partnership. 

V.  Pledges  hy  Corporations. 

70.  As  a  general  rule  a  corporation  has  the  power  to 
pledge  any  chattel  belonging  to  it,  unless  expressly  restrained 
by  statute,  or  impliedly  restrained  by  the  nature  of  its  under- 
taking. A  corporation  has  at  least  the  same  power  to  pledge  its 
property  that  it  has  to  mortgage  it ;  and  this  power  is  unlimited, 
except  in  case  of  corporations  which  have  been  given  special 
rights  and  privileges,  from  the  exercise  of  which  it  is  expected 
the  public  will  derive  an  advantage.  Railroad  corporations  are  of 
this  nature.  Accordingly  it  is  held  that  such  corporations  can- 
not, without  legislative  authority,  mortgage  their  corporate  fran- 
chises, or  property  which  is  essential  to  the  exercise  of  such  fran- 
chises.^ This  restriction  upon  the  right  of  alienation  by  such 
companies  applies  with  much  more  force  to  transfers  by  way  of 
mortgage  than  to  transfers  b}^  way  of  pledge  ;  for  there  is  but 
little  property  essential  to  maintaining  the  business  of  such  a 
corporation  which  could  be  delivered  by  way  of  pledge.  So  far 
as  concerns  a  pledge  of  the  rolling-stock  of  a  railroad  corpora- 
tion, the  same  considerations  would  apply  that  are  applicable  to 
mortgages  of  such  rolling-stock.^ 

71.  A  corporation  may  pledge  unissued  stock  which  has 
been  left  in  the  hands  of  its  directors  to  be  applied  to  the  ad- 
vancement of  its  best  interests.  The  directors  have  in  such  ease 
the  right  to  determine  how  it  can  be  most  advantageously  used, 
and  it  is  no  proper  subject  of  complaint  on  the  part  of  any  one 
that  they  apply  it  to  raising  money  for  the  company.'^ 

Upon  the  payment  of  a  debt  of  a  corporation  secured  by  a 
pledge  of  its  own  bonds,  and  the  surrender  of  the  bonds  to  an 

^  .Jones  on  liiiilroad  Securities,   §§  v.  Fisher,  9  N.  J.  Eq.  6G7,  it  seems 

l-2o;  Jones  on  Mortgages,  §  124.  to    have     been    doubted    wlielher    a 

*  See  Jones  on  Railroad  Securities,  debtor's  own  obligation  could  be  held 

§§  146-187.           •  in  pledge  for  hia  debt.     But  there  can 

'  Combination  Trust  Co.  v.  Weed  be  nociuestion  now  that  such  a  jjlodgo 

(C.  C.  E.  D.  Pa.    1880),  2  Fed.  Kcj).  can  be  made;  and,  as  a  matter  of  fact, 

24.     In  Morris  Canal  &  IJaiiking  Co.  such  pledges  are  very  freijuent. 

47 


§  72.]  OF   THE   SUBJECT    MATTER   AND   THE   PARTIES. 

officer  of  the  corporation,  they  are  not  property  of  the  corpora- 
tion liable  to  be  reached  by  garnishment  against  the  officer  ;  ^ 
for  upon  the  payment  of  the  debt  the  bonds,  which  were  merely 
the  corporation's  own  collateral  promises,  were  discharged.  The 
obligation  of  the  corporation,  as  witnessed  by  its  bonds,  is  dis- 
charged by  payment  as  much  as  the  corporation's  note  is  dis- 
charged by  the  same  payment. 

72.  A  corporation  may,  moreover,  pledge  its  unissued 
stock,  or  negotiable  bonds,  to  its  president  or  to  one  of  its 
directors,  as  security  for  a  loan  ;  and  although  the  transaction 
will  be  looked  upon  with  suspicion,  it  will  be  enforced  when  it  is 
shown  to  have  been  made  for  the  benefit  of  the  corporation,  and 
to  be  just.^  Although  a  director  stands  in  a  fiduciary  relation  to 
the  corporation,  and  is  within  the  rule  disenabling  one  intrusted 
with  powers  to  be  exercised  for  the  benefit  of  others  from  deal- 
ing in  his  own  behalf,  in  respect  to  matters  involving  the  trust, 
yet  such  a  transaction  cannot  be  avoided  by  the  corporation  with- 
out restoring  what  it  has  received  ;  and  it  is  immaterial  in  this 
respect  whether  the  pledge  was  taken  for  a  present  or  a  pre- 
cedent debt.^  A  director  receiving  bonds  or  other  property  of  a 
corporation,  as  collateral  security  for  a  debt  honestly  due  him,  is 

1  Galena  &  Southern  Wis.  R.  R.  Sherwood,  C.  J.,  said:  "Even  if  the 
Co.  V.  Stahl,  103  III.  67.  In  this  case,  order  by  which  the  officers  and  direc- 
however,  the  bonds  were  not  actually  tors  of  the  company  pledged  to  each 
in  the  officer's  hands,  though  he  had  other  nearly  a  million  dollars  in  bonds 
receipted  for  them.  The  creditor  had  to  secure  an  indebtedness  of  less  than 
proved  them  before  a  master  appointed  four  per  cent,  of  the  face  of  the  col- 
in  foreclosure  ^proceedings,  and  had  laterals,  can  be  imagined,  considering 
left  the  bonds  in  the  master's  hands,  the  great  disproportion  between  the 
The  receipt  by  the  officer  was  a  mere  amount  of  the  debt  and  the  value  of 
formality  to  free  the  creditor  from  his  the  pledge,  to  have  been  made  bond 
obligation  to  return  the  bonds.  But  Jide,  still  the  fact  that  the  pledge  was 
aside  from  this  circumstance,  the  prin-  made  in  favor  of  themselves,  by  the 
ciple  stated  in  the  text  seems  to  be  fiduciaries  of  the  company's  interests, 
good  law,  and  to  be  suppoi-ted  by  the  is  enough  to  cause  the  order  to  be 
reasoning  of  the  court.  scrutinized  with  the  most  rigorous  and 

2  Combination  Trust  Co.  v.  Weed  jealous  observation.  A  transaction  of 
(C.  C.  E.  D.  Pa.  1880),  2  Fed. Rep.  24.  this  kind  is  viewed  with  greater  odium 
In  Chouteau  v.  Allen,  70  Mo.  290,  than  a  dealing  between  a  trustee  and 
338,  where  the  directors  of  a  corpo-  his  beneficiary." 

ration  pledged  a  large  amount  of  its  "  Duncomb  v,  N.  Y.,  Housatonic, 
assets  to    themselves,  the    court,  by     &  Northern  R.  R.  Co.  84  N.  Y.  190. 

48 


PLEDGES   BY    CORPORATIONS.  [§§  73,  74. 

not  within  the  rule.  "  Whei'e  the  trustee's  act  consists,  not  in 
possessing  himself  of  the  property  of  the  beneficiary  as  owner, 
but  in  taking  collateral  security  for  a  debt  honestly  due  him,  or 
a  liability  justh'  incurred,  the  rule  can  have  no  application,  since 
the  payment  of  the  debt,  or  the  discharge  of  the  liability,  is  an 
essential  prerequisite  of  the  avoidance."  ^ 

73.  A  manufacturing  or  commercial  corporation  may 
pledge  its  mortgage  bonds  as  collateral  security  for  existing 
debts,  and  this  power  is  not  limited  or  restrained  by  a  resolution 
of  its  stockholders  authorizing  the  use  of  the  bonds  in  payment, 
at  par  value,  of  any  indebtedness  of  the  company,  or  to  raise 
money  for  conducting  its  business.  One  of  the  implied  powers 
of  such  a  corporation  is  to  deal  on  credit,  for  any  proper  cor- 
porate purpose,  in  the  usual  and  ordinary  mode  of  conducting  its 
business.  Such  bonds,  whether  hypothecated  as  a  security  for 
antecedent  debts  or  applied  directly  to  their  satisfaction,  are 
used  in  paying  the  debts,  for  the  benefit  of  the  corporation,  and 
for  the  objects  specified  in  the  resolution.^ 

74.  A  railroad  corporation  having  power  to  borrow  money 
for  completing  or  operating  its  road,  and  to  issue  its  bonds  to 
secure  the  jaayment  of  any  debt  contracted  for  that  purpose,  may 
make  a  valid  pledge  of  its  bonds,  not  only  for  money  borrowed  at 
the  time,  but  also  for  a  precedent  debt  incurred  for  money  bor- 
rowed for  the  purposes  specified,  unless  some  statute  requires  that 
the  borrowing  and  the  issuing  of  the  bonds  shall  be  simultaneous.^ 
Such  a  corporation  may  make  a  valid  pledge  of  its  bonds  to  its 
president  to  secure  a  sura  of  money  fairly  due  him  upon  his 
salary.  It  may  also  make  a  valid  pledge  of  its  bonds  to  secure 
the  rent  of  offices  used  in  its  business  ;  for  such  an  expenditure 
is  embraced  within  the  authority  conferred  upon  it  to  issue  its 
bonds.* 

*  Duncoinb  r.  N.  Y.,  Ilousatonic  &  a  protection  into  a  weapon  of  offence 

Xoniiern    K.    K.    Co.  84    N.  Y.  lUO.  and  injustice."     Per  Finch,  J. 

"'I'o  clinjj  to  the  fruits  of  the  trustee's  '^  Lehman  v.  Tallassee  Alanuf.  Co. 

dealing  while     seeking   to   avoid   his  6-1  Ala.  6G7. 

act;  to  take  the  benefit  of  his   loan,  «  Dunconib  y.  N.  Y.,  Ilousatonic  & 

and  yet  avoid  and  reverse  its  security,  Northern  R.  II.  Co.  8-1  N.  Y.  190. 

would  be  grossly  ineciuitable  and  un-  ■•  Dunconib  y.  N.  Y.,  Ilousatonic   & 

just.     It  would  turn  a  rule  designed  as  Northern  11.  K.  Co.  supra. 

*  49 


§§  75-77.]   OF  THE  SUBJECT  MATTER  AND  THE  PARTIES. 


VI.  Pledges   to   Corporations. 

75.  A  corporation,  whether  private  or  municipal,  may 
take  a  pledge  of  any  property,  unless  the  pledge  come  within 
some  positive  statutory  prohibition.  A  pledge  to  a  corporation 
■which  is  prohibited  from  doing  a  banking  business  may  be  en- 
forced, though  the  transaction  was  a  discount  of  a  note  secured 
by  pledge.  The  note  7nay  be  void,  but  the  loan  and  the  security 
are  valid.^ 

76.  A  corporation  prohibited  by  statute  from  becoming 
the  holder  of  the  stock  of  another  corporation  cannot  take 
a  pledge  of  the  stock  of  such  other  corporation  from  one  of  its 
stockholders.  If  it  attempt  to  do  so,  the  corporation  whose  stock 
is  sought  to  be  pledged,  hy  refusing  to  transfer  the  stock  upon  its 
books,  does  not  make  itself  liable  to  the  pledgee  for  such  refusal, 
because  the  pledgee,  in  such  case,  is  not  entitled  to  a  transfer.^ 
Though  a  corporation  take  in  pledge  security  which  it  is  prohib- 
ited by  its  charter  from  holding,  the  contract  of  pledge  is  not 
void,  but,  at  most,  only  voidable.  The  title  to  the  security  vests 
in  the  corporation  as  pledgee.^ 

77.  A  national  bank  may  take  a  pledge  of  chattels  as  se- 
curity for  a  loan  of  money.  The  authority  conferred  by  the 
banking  act  to  make  loans  on  personal  security  does  not  restrict 
them  to  the  security  afforded  by  the  names  of  indorsers  or  per- 

1  Duncomb  v.  N.  Y.,  Housatonic  &  seem  to  be  little  doubt,  either  upon 
Northern  R.  E.  Co.  84  N.  Y.  190.  principle  or  authority,   and   indepen- 

2  Franklin  Bank  v.  Commercial  dently  of  express  statutory  prohibi- 
Bank,  36  Ohio  St.  350.  Such  a  tion  of  the  same,  that  one  corporation 
statutory  prohibition  is  founded  upon  cannot  become  the  owner  of  any  por- 
the  reason  that  if  one  corporation  tion  of  the  capital  stock  of  another 
could  acquire  the  stock  of  another  corporation,  unless  authority  to  be- 
lt might  obtain  a  controlling  interest  come  such  is  clearly  conferred  by 
in  tbe  stock  of  that  corporation,  and  statute."  The  same  view  was  ex- 
thus  not  only  interfere  with  the  in-  pressed  by  the  Supreme  Court  of 
ternal  management  of  the  affairs  of  Maine  in  the  case  of  Franklin  Com- 
that  corporation,  but  enlarge  its  own  pany  v.  Lewiston  Inst,  for  Savings, 
franchise  by  engaging  in  business  68  Me.  43,  where  other  cases  to  the 
foreign  to  that  for  which  it  was  organ-  same  effect  are  cited. 

ized.     In  the   above  case   there   is  a  ^  Sestare  v.  Best,  88  N.  Y.  527, 

dictum  of  the  court  that ' '  there  would 

50 


PLEDGES   TO   CORPORATIONS.  [§§  78,  79. 

sonal  sureties,  bat  they  may  take  pledges  of  bonds,  cboses  in 
action,  bills  of  lading,  or  other  personal  chattels ;  and  this  is  the 
universal  usage.^  The  words  "personal  security"  seem  to  be 
used  in  contradistinction  to  real  estate  security. 

A  pledge  to  a  national  bank  is  valid  although  taken  in  viola- 
tion of  a  provision  of  the  National  Banking  Act,  prohibiting  a 
loan  to  one  individual  exceeding  one  tenth  part  of  the  capital  of 
the  bank.  The  penalty  for  such  a  violation  of  the  law  consists 
in  proceedings  against  the  franchise  of  the  bank,  and  a  liability 
for  damages  of  its  offending  officers. ^ 

A  national  bank  may  hold  in  pledge,  as  collateral  security  for 
a  loan  made  or  to  be  made,  shares  in  the  capital  stock  of  another 
national  bank.^ 

A  national  bank  has  no  authority  to  lend  its  credit  on  personal 
security  ;  and  therefore  one  who  knowingly  takes  as  collateral 
security  drafts  of  a  national  bank  drawn  for  the  accommodation 
of  a  customer,  cannot  recover  in  a  suit  against  the  bank  in  the 
hands  of  a  receiver.'^ 

78.  National  banks  may  take  a  pledge  of  the  stock  of  cor- 
porations whose  property  is  solely  real  estate,  without  violat- 
ing the  provisions  of  the  National  Banking  Act,  under  which  it  is 
held  that  such  banks  cannot  loan  money  upon  mortgao-es  of  real 
estate,  if  such  mortgages  are  taken  as  security  for  loans  made  at 
the  time,  or  for  future  advances;  ^  for  a  pledge  of  stock  of  such 
corporations  is  in  no  sense  a  mortgage  of  the  corporate  property. ^ 
The  stock  of  such  corporations  is  personal  property. 

79.  A  national  bank  cannot  make  a  valid  loan  on  the  se- 
curity of  its  own  stock."  It  cannot  become  a  holder  in  any 
way  of  its  own  shares,  unless  this  is  absolutely  necessary  to  pre- 

1  Pittsburg      Locomotive      &     Car  628;  Dayton  Nat.  Bank  r.  INIercliants' 

Works   V.    State   Nat.  Bank,  21    Int.  Nat.  Bank,  37  Ohio  St.  208,  21. -J. 

Itev.  Record,   3-19;  Shoemaker  v.  Na-  *  Johnston    v.   Charlottesville   Nat, 

tional   Mechanics'  Bank,    2  Abb.   (U.  Bank,  3   Hughes,  C57;  and  see  Selij^- 

^•)  '^^''-  man  v.  Charlottesville  Nat.  JJank,  lb. 

=^  (iold  Miiiinf^  Co.  V.  Nat.  Bank,  'JG  G4  7. 

U.  S.  (MO;    Diincoinb  v.  N.  Y.,  Hoiisa-  ^  .loncss  on  Mortga'j;e.s,  §  134. 

tonic  &  Northern   II.  R.  Co.  84  N.  V.  «  Baldwin  v.  Canfidd,  2G  Minn.  43; 

I'^C-  S.  ('.  1  N.  W.  Rep.  2G1,  .085. 

»  National  Bank  i'.  Case,  99   U.  S.  ''  Act  of  June  3,  1864. 

61 


§  79.]  OF    THE   SUBJECT    MATTER   AND   THE   PARTIES. 

vent  a  loss  on  a  debt  previously  contracted.^  It  cannot  acquire  a 
lien  on  its  own  stock  held  by  persons  who  are  not  debtors,  even" 
by  force  of  direct  by-laws,  or  articles  of  association  framed  for 
that  purpose.  Such  a  lien  is  against  the  spirit  and  policy  of  the 
statute,  and  a  bank  has  no  right  to  make  a  by-law  giving  such  a 
lien.  2 

1  Bank  v.  Lanier,  11  Wall.  369;  Ha-         "  Bullard  v.  Bank,  18  Wall.  589. 
gar  V.  Union  Nat.  Bank,  63  Me.  509. 

52 


CHAPTER  III. 

PLEDGES   OF  NEGOTIABLE   PAPER. 

I.  Delivery  and  possession,  80-88.  I  III.  Collateral  for  a  preexisting  debt,  107- 

II.  Bonajide  holder  for  value,  89-106.  |  133. 

I.  Delivery  and  Possession. 

80.  Delivery  and  possession  are  essential  to  a  valid  pledge 
of  negotiable  paper,  in  the  same  way  that  they  are  essential  to 
a  valid  pledge  of  a  corporeal  chattel.  In  a  recent  case  before  the 
Supreme  Court  which  arose  in  Louisiana,  and  was  governed  by 
its  Code,  it  was  held  that  a  pledge  of  negotiable  paper  without  an 
actual  transfer  or  delivery  of  it  to  the  pledgee,  it  never  having 
been  out  of  the  pledgor's  actual  possession,  but  always  subject  to 
his  disposal  by  way  of  collection,  sale,  substitution,  or  exchange, 
was  not  valid  as  against  the  pledgor's  creditors.^  A  bank  of 
New  Orleans,  organized  under  the  National  Banking  Act, 
obtained  a  loan  of  a  million  francs  from  the  Credit  Mobilier 
of  Paris,  upon  an  agreement  to  deposit  bills  and  notes  with 
the  president  of  the  bank  and  his  partner,  Cavaroc  &  Son. 
Certain  securities  were  selected  and  placed  in  an  envelope 
and  handed  to  the  president,  for  Cavaroc  &  Son.  He  handed 
them  to  the  cashier  of  the  bank  for  safe  keeping.  Soon  after- 
wards the  securities  were  handed  to  the  discount  clerk,  for 
the  purpose  of  his  conveniently  attending  to  their  collection  and 
renewal.  When  any  of  the  notes  were  paid,  the  money  was 
taken  and  used  b}'^  the  bank,  and  other  notes  were  substituted  in 
their  place.  Many  of  the  notes  were  exchanged,  because  more 
available  to  the  bank  in  some  qther  transaction.  So  far  as  those 
with  whom  the  bank  dealt  could  perceive,  the  bank  continued  to 
have  pos.session  and  control  of  all  tlie  securities  in  its  own  right, 
and  they  all  appeared  to  be  equally  liable  with  the  other  assets 
to  the  claims  of  all  the  creditors.     It  was  held  that  there  was  not 

1  Casey  u.  Cavuroc,  90   U.  S.  4G7;     lb.  492;    Casey    v.    Scliiiciianli,    II). 
followed  in   C;u<ey  v.  National  Bank,     494. 

63 


§  81.]  PLEDGES  OF  NEGOTIABLE  PAPER. 

such  a  delivery  and  possession  as  is  necessary  to  create  a  pledge 
by  the  law  of  Louisiana. 

Aside  from  being  governed  by  the  law  of  Louisiana,  the  case 
was  distinguished  from  that  of  Clark  v.  Iselin,'  in  that  the  securi- 
ties in  the  Louisiana  case  never  went  out  of  the  pledgor's  actual 
possession,  nor  were  the  bills  and  notes  indorsed  by  the  bank  to 
the  pledgee.  But  in  Clark  v.  Iselin  the  title  was  transferred  to 
the  pledgee,  so  tliat  he  held  the  paper  by  way  of  mortgage  as 
well  as  pledge  ;  and  hence  the  actual  possession  of  the  securities 
was  of  less  importance.  A  mortgage  may  be  valid  notwith- 
standing the  mortgagor  has  possession.  In  Casey  v.  Cavaroc, 
Mr.  Justice  Bradley,  upon  this  point,  said :  "It  must  not  be  over- 
looked that  the  Credit  Mobilier  has  no  other  claim  to  the  securi- 
ties in  question  but  that  of  pledge.  A  pledge,  and  possession, 
which  is  its  essential  ingredient,  must  be  made  out,  or  their  priv- 
ilege fails.  An  agreement  for  a  pledge  raises  no  privilege.  There 
is  no  mortgage  ;  for  the  title  to  the  securities  was  never  trans- 
ferred to  them.  The  evidence  of  the  cashier  is,  that  they  were 
all  stamped  payable  to  the  order  of  the  bank,  when  discounted. 
They  were  not  indorsed  by  the  cashier  until  the  day  they  were 
removed  by  Cavai'oc,  which  was  after  the  bank  had  failed." 

81.  There  are  statutory  provisions  upon  this  subject  in  a 
few  states.  Thus  in  Georgia  ^  it  is  provided  that  promissory 
notes  and  evidences  of  debt  may  be  delivered  in  pledge.  The 
receiver  in  pledge  or  pawn  of  promissory  notes  is  such  a  bo7id  fide 
holder  as  will  protect  him,  under  the  same  circumstances  as  a 
purchaser,  from  the  equities  between  the  parties,  but  not  from 
the  true  owner,  if  fraudulently  transferred,  though  without  notice 
to  him. 

The  Civil  Code  of  Louisiana^  provides  that  when  a  debtor 
wishes  to  pawn  a  claim  on  another  person,  he  must  make  a 
transfer  of  it  in  the  act  of  pledge,  and  deliver  to  the  creditor  to 
whom  it  is  transferred  the  note  or  instrument  which  proves  its 
existence,  if  it  be  under  private  signature,  and  must  indorse  it 
if  it  be  negotiable. 

i  21  AVall.  360.  3  R,  Civil  Code  1870,  p.  575,  arts. 

2  Code    1873,    §    2139.      But    the  3156,  3158,  3160,  3161  ;  Fluker  y.  Bul- 

delivery   of    title    deeds    creates    no  lard,  2  La.  Ann.  338. 
pledge. 

54 


DELIVERY    AND    POSSESSION.  [§§  82,  83. 

When  a  debtor  wishes  to  pawn  promissory  notes,  bills  of  ex- 
change, stocks,  obligations  or  claims  npon  other  persons,  he  shall 
deliver  to  the  creditors  the  notes,  bills  of  exchange,  certificates 
of  stock,  or  other  evidences  of  the  claims  or  riglits  so  pawned  ; 
and  such  pawn  so  made,  without  further  formalities,  shall  be 
valid  as  well  against  third  persons  as  against  the  pledgors  thereof 
if  made  in  good  faith. 

When  the  thing  given  in  pledge  consists  of  a  credit  not  nego- 
tiable, it  is  necessary,  not  onh^  that  the  pi'oof  of  the  pledge  be 
made  by  an  authentic  act  or  by  act  under  private  signature  duly 
recorded,  but  that  a  copy  of  this  act  shall  have  been  duly  served 
on  the  debtor  of  the  credit  given  in  pledge.  On  the  other  hand, 
this  notification  of  the  act  of  pledge  to  the  person  owing  the  debt 
pledged  shall  not  be  necessary,  if  the  debt  is  evidenced  by  a  note 
or  other  instrument  payable  to  the  bearer  or  to  order  ;  because  in 
that  case  it  will  suffice  that  the  note  or  instrument  shall  have 
been  indorsed  by  the  person  pledging  it,  to  invest  the  creditor 
with  the  privilege  above  mentioned. 

82.  Parol  evidence  is  admissible  to  establish  the  fact  that 
a  transfer  of  negotiable  paper  was  intended  simply  as  col- 
lateral security,  and  not  as  an  absolute  transfer.^  Such  evidence 
is  admissible  for  this  purpose  upon  the  same  grounds  that  it  is 
admissible  to  show  that  an  absolute  conveyance  of  real  or  per- 
sonal property  was  intended  to  operate  only  as  a  mortgage.^ 

It  is  always  competent  to  show  by  parol  that  one  to  whom  ne- 
gotiable paper  has  been  made  or  transferred  in  terms  absolutely 
in  fact  holds  it  as  security  only.^ 

83.  Yet  the  delivery  need  not  always  be  actual.  A  de- 
livery is  sufficient,  which  vests  the  title  and  control  of  the  paper 
in  the  pledgee.  Whenever,  from  the  circumstances  of  the  case, 
an  actual  delivery  is  impossible,  the  pledge  may  rest  upon  the 
contract  of  the  parties,  accompanied  by  the  possession  of  a  third 
person.     Thus  a  note  already  pledged  and  in  the  possession  of 

1  Ilazzard    v.  Duke,  G4    Ind.    220;  2  Jones  on  Mortgages,  §§  282-3J2; 

Wood  V.  Miittliews,  73  Mo.  4  77;  John-  Jones  on  Chattel  Mortgages,  §§  22-24. 

son  V.  Huston,  17    Mo.  58;   Sayre  i;.  *  Kelly  v.  Ferguson,  40  How.   (N. 

King,  17  W.   Va.    502.     See   §§  36,  Y.)    Pr.   411;  Van    Pelt   v.    Otter,  2 

37.  Sweeny  (N.  Y.),  202. 

55 


§§  84,  85.]  PLEDGES    OF   NEGOTIABLE   PAPER. 

the  pledgee  may  be  again  pledged  by  the  owner  to  another  per- 
son, subject  to  the  lien  of  the  first  pledge,  without  any  further 
delivery  of  it.  The  possession  of  the  note  by  the  first  pledgee 
may  be  regarded  as  the  possession  of  the  second  pledgee  through 
the  agency  of  the  former.^ 

A  note  of  a  third  person,  already  in  the  hands  of  a  creditor,  to 
secure  a  particular  debt,  may,  after  the  payment  of  that  debt,  or 
subject  to  the  payment  of  that,  be  pledged  to  the  same  creditor 
for  another  debt,  without  a  new  delivery .^ 

84.  Subsequent  delivery.  A  valid  transfer  of  negotiable 
paper  may  be  made  by  a  written  assignment,  without  a  delivery 
of  it  at  the  time.  Thus,  if  a  loan  be  made  upon  such  paper  at 
the  time  of  such  assignment,  and  the  paper  be  delivered  after- 
wards, the  creditor  is  a  hand  fide  holder  for  value,  and  is  not 
affected  by  any  set-off  which  may  accrue  to  the  maker  of  the  col- 
lateral paper  between  the  time  of  the  assignment  and  the  actual 
delivery  of  it.^  An  agreement  by  the  holder  of  a  promissory  note 
to  pay  a  portion  of  it  to  a  creditor  when  collected  amounts  to  an 
equitable  transfer  of  such  portion  of  the  note,  which  is  good 
against  the  pledgor's  assignee  in  insolvency.* 

85.  Actual  possession  of  negotiable  paper  is  requisite  to 
establish  the  title  of  a  bona  fide  holder  as  against  the  equities 
of  third  persons.  Thus,  if  one  loan  money  upon  negotiable  paper 
which  the  borrower  has  not  received,  upon  the  strength  of  a  let- 
ter or  other  writing  from  the  maker  or  holder  of  such  paper  to 
the  borrower,  promising  to  forward  it,  the  lender  takes  the  risk 
of  equities  arising  in  favor  of  the  maker  or  holder  of  the  paper, 
whereby  he  is  absolved  from  his  promise  to  deliver  it.  A  banker 
at  Havana,  at  the  request  of  a  merchant  in  New  York,  drew 
bills  of  exchange  on  London  upon  his  own  credit,  and  sold  the 
same  at  Havana,  invested  the  proceeds,  which  were  his  own  funds, 
in  current  bills  on  New  York,  payable  to  the  merchant's  clerk, 
and  forwarded  them  in  a  package  dircctf^d  to  the  merchant,  by 
the  purser  of  a  steamer,  to  be  deposited  in  the  post-office  in  New 

1  Wiley,  in  re,  4  Biss.  171.  3  §§  38,  39  ;  Nelson  v.  Edwards,  40 

2  Providence  Thread  Co.  v.  Aldrich,  Barb.  (N.  Y.)  279;  ,S.  C.  5  Bosw.  178. 
12  R.  I.  77;  S.  C.  G  Rep.  347.  ^  Qallinger   v.  Pomeroy,  3   Greene 

(Iowa),  178. 

56 


DELIVERY   AND   POSSESSION.  [§  85. 

York.  The  banker  telegraphed  to  the  merchant,  stating  the 
transaction  in  substance,  and  that  the  bills  purchased  had  been 
forwarded  by  steamer.  The  merchant  applied  for  a  loan  upon 
these  bills,  exhibiting  the  telegram,  and  obtained  the  loan  upon 
delivering  the  telegram,  with  an  agreement  on  his  own  part  to 
hand  over  the  bills  upon  their  arrival.  The  next  day  the  mer- 
chant failed,  and  the  banker,  learning  of  the  failure  before  the 
delivery  of  the  bills,  commenced  an  action  to  recover  them,  and 
obtained  an  order  restraining  the  postmaster  of  New  York  and 
the  merchant  from  transferring  or  disposing  of  the  bills.  The 
Court  of  Appeals  of  New  York  held  that  the  lender  could  not 
claim  the  bills  as  bond  fide  holder,  but  acquired  only  the  rights 
of  the  merchant  in  the  bills  ;  and  that  the  banker  was  not 
estopped  by  his  telegram  from  asserting  his  right  to  reclaim  the 
bills.^  Upon  the  latter  point  the  court  say  :  "  An  insuperable 
difficulty  in  predicating  an  estoppel  in  pais  against  the  plaintiff 
upon  this  dispatch  is,  that  it  was  designed  solely  for  the  informa- 
tion of  the  persons  to  whom  it  was  addressed,  and  not  to  in- 
fluence the  action  of  any  other  person  ;  and  the  communication 
was  not  of  a  character  which  could,  in  the  usual  course  of  busi- 
ness, influence  the  action  of  third  persons ;  and  least  of  all  was 
it  calculated  to  induce  any  one  to  part  with  money  upon  the 
credit  of  the  bills  referred  to,  and  faith  in  the  title  of  the  bor- 
rower to  them.  The  plaintiff  could  not  have  foreseen  that  the 
dispatch  would  be  used  as  the  basis  of  a  credit,  or  that  money 
could  be  borrowed  on  the  faith  of  it.  Every  element  of  an  estop- 
pel was  wanting.  A  party  is  only  concluded,  that  is  estopped, 
from  alleging  the  truth  by  a  declaration  or  representation  incon- 
sistent with  the  facts  asserted  and  attempted  to  be  proved,  when 
it  is  made  with  intent,  or  is  calculated  or  may  be  reasonably  ex- 
pected to  influence  the  conduct  of  another  in  a  manner  in  which 
he  will  be  prejudiced  if  the  party  making  the  statement  is  al- 
lowed to  retract,  and  when  it  has  influenced  and  induced  action 
from  which  injury  and  loss  will  accrue  if  a  retraction  is  allowed. 
There  is  no  statement  in  the  cable  dispatch  which  is  inconsistent 
with  the  rights  now  asserted  by  the  plaintiff' ;  and  the  assertion 
of  such  rights  is  not  against  good  conscience  in  any  view  of  the 
dispatch,  or  the  use  designed  or  expected  to  be  made  of  it,  or 
which  was  actually  made  of   it.     TIk;  plaintiff  is  not,  therefore, 

^  Muller  V.  Pondir,  oo  N.  Y.  325;  adiiming  G  Lans.  472. 

57 


§  86.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

estopped  from  asserting  any  right  he  may  have  to  the  bills  in 
controversy. 

*'  Neither  does  the  rnle  invoked  by  the  lender,  that  when  one  of 
two  innocent  persons  must  suffer  from  the  wrongful  or  fraudulent 
act  of  another,  the  loss  should  devolve  upon  him  by  whose  act  or 
omission  the  wrong-doer  has  been  enabled  to  perpetrate  the  fraud, 
avail  him.  That  applies  only  when  the  wrong-doer  is  invested 
by  the  party  sought  to  be  charged  with  the  ordinary  indicia  of 
ownership  and  jus  disponendi  of  property,  or  an  apparent  au- 
thority to  do  the  act  from  which  loss  must  accrue  to  one  of  two 
innocent  parties.  The  evidence  of  ownership  of  negotiable  bills  is 
their  possession,  properly  indorsed,  so  as  to  pass  the  title  to  the 
holder.  There  is  no  such  thing  as  a  symbolical  delivery  of  nego- 
tiable instruments  ;  and  the  law  does  not  recognize,  for  commer- 
cial purposes,  a  right  of  possession  as  distinct  from  the  actual 
possession.  Had  the  borrower  himself  had  actual  possession  of 
the  bills,  and  then  indorsed  and  transferred  them  to  the  lender, 
the  plaintiff  would  have  been  remediless.  This  is  not  only  the 
legal  evidence  of  ownership,  but  it  is  that  required  in  dealing 
in  commercial  paper  in  the  ordinai'y  course  of  business  ;  and  he 
who  acts  with  less  evidence  of  title  in  one  claiming  to  have  the 
right  of  disposal  does  so  at  his  peril." 

As  to  the  rights  of  the  banker  against  the  merchant  in  this 
case,  it  was  held  that  he  had  the  same  right  to  stop  the  bills  in 
transitu  that  one  selling  goods  on  credit  has  to  stop  them  in 
transitu.  This  right,  in  both  cases,  continues  so  long  as  there 
has  been  no  change  in  the  possession  and  title. 

86.  Redelivery  to  debtor  for  collection.  —  The  well  estab- 
lished principle  that  possession  is  necessary  to  perfect  a  title  by 
pledge  applies  to  pledges  of  negotiable  paper  and  other  choses  in 
action,  as  well  as  to  pledges  of  chattels;  and  it  is  also  well  settled, 
in  regard  to  pledges  of  both  kinds  of  property,  that  the  delivery 
back  of  the  possession  of  the  thing  pledged,  by  the  act  or  with 
the  consent  of  the  pledgee,  terminates  his  title,  unless  such  re- 
delivery be  for  a  temporary  purpose  only  ;  or  unless  the  thing 
is  to  be  held  by  the  pledgor  in  a  new  character,  such  as  a  special 
bailee,  or  agent.^  The  qualification  that  there  may  be  a  rede- 
livery of  the  thing  pledged  for  a  temporary  purpose  is  applied  to 

1  Citizens'  National  Bank  v.  Hooper,  47  Md.  88.     See  §§  40-44. 

58 


DELIVERY   AND   POSSESSION.  [§  87. 

pledges  of  choses  in  action,  in  order  to  facilitate  their  collection 
through  the  services  of  the  pledgor  ;  and,  accordingly,  it  is  held 
that  a  creditor  to  whom  negotiable  paper,  or  any  other  chose 
in  action,  has  been  transferred  as  collateral  security,  may  hand  it 
back  to  the  debtor,  to  enable  him  to  collect  the  claim  or  to  re- 
place it  by  other  security,  without  affecting  the  creditor's  title.^ 
The  deposit  is  regarded  as  made  merely  to  facilitate  collections  ; 
and  the  money  collected  by  the  debtor  is  regarded  as  held  by 
him  in  a  fiduciary  capacity  for  the  pledgee.  The  fact  that  a  por- 
tion of  the  collaterals  is  replaced  by  others  within  a  month  prior 
to  the  bankruptcy  of  the  debtor  has  been  held  not  to  avoid  the 
transaction,  it  appearing  that  the  debtor's  estate  was  not  thereby 
impaired,  and  that  there  was  no  purpose  to  delay  or  defraud  his 
creditors,  or  to  give  preference  to  any  one.^ 

A  customer  of  a  bank,  having  deposited  with  it  as  collateral 
security  for  discounts  a  note  of  a  third  person  secured  by  mort- 
gage, was  allowed  to  withdraw  them  for  the  purpose  of  fore- 
closure upon  his  agi^eement  to  return  the  proceeds,  or  to  replace 
them  by  other  securities.  At  the  foreclosure  sale,  the  customer 
purchased  the  property  and  deposited  the  deed  with  the  bank. 
Under  these  circumstances,  an  equitable  lien  would,  doubtless, 
have  been  established  in  behalf  of  the  bank,  except  for  the  reason 
that  the  indebtedness  of  the  customer,  for  which  the  deposit  was 
made,  had  in  the  mean  time  been  discharged.^ 

87.  But  a  redelivery  to  the  debtor  destroys  the  creditor's 
special  property  in  the  pledge  as  against  third  persons  who 
in  good  faith  deal  with  the  debtor,  relying  upon  his  ownership 
of  the  property  as  evidenced  by  his  possession  of  it.  The  holder 
of  certain  notes  secured  by  mortgage  deposited  them  in  a  bank 
of  which  he  was  a  director,  in  a  package  with  other  securities, 
under  an  agreement  that  they  were  all  to  be  held  as  collateral 
security  for  his  liability  to  the  bank.  He  was  accustomed  to 
add  securities  to  this  package,  and  to  take  securities  from  it,  with 
the  consent  of  the  officers  of  the  bank.     With  such  consent  he 

*  Cliirk    V.    fsclin,    21    W;ill.    .'JOO;  the  pledgee  by  indorseinent,  whereas 

Wliite  V.  Piatt,  5  Denio  (N.  Y.),  2G9.  in  the  former  eases  the  pledgee  had 

^  Clark  V.  Iselin,  suprti  ;  Wliite  v.  such  title. 
Piatt,  supra.     Compare  with  Casey  v.  "  Biebinger   v.  ContineiiL.tl    Bank, 

Cavaroe,  90  U.  S.  4G7.      In  the  latter  99  U.  S.  M3,  per  Miller,  J. 
case  the  title  to  the  paper  was  not  in 

59 


§  88.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

took  away  the  mortgage  notes,  and  assigned  thera,  with  the 
mortgage,  to  one  who  paid  their  full  value.  The  assignee  re- 
quested the  assignor  to  take  charge  of  the  notes,  and  he  accord- 
ingly did  so,  and  placed  them  again  in  his  package  at  the  bank, 
and  collected  the  interest  as  the  assignee's  agent.  The  mortgage 
was  never  in  the  bank.  After  the  assignment  of  the  mortgage, 
and  after  the  assignor  had  again  placed  the  notes  in  the  package, 
the  bank,  relying  upon  the  package  of  securities,  loaned  him  a 
further  sum.  The  package  then  contained  other  securities,  in- 
cluding some  bonds,  which  were  worth  more  than  the  amount  of 
the  loan ;  but  the  officers  of  the  bank  afterwards  allowed  him  to 
take  away  the  bonds  and  dispose  of  them  for  his  own  benefit. 
The  officers  had  no  actual  knowledge  of  the  return  of  the  notes  to 
the  package  when  they  made  this  additional  loan.  The  pledgor 
acted  in  good  faith  in  selling  the  mortgage,  believing  his  debt  to 
the  bank  to  be  much  less  than  the  value  of  his  other  securities 
deposited  there,  and  having  forgotten  his  agreement  with  the 
bank.  The  purchaser  of  the  mortgage  had  no  knowledge  of  the 
agreement.  It  was  held  that  these  facts  warranted  a  finding  that 
the  bank  did  not  hold  the  notes  as  collateral  security  after  they 
were  taken  away  and  again  returned  to  it,  and  that  the  bank  did 
not  rely  upon  them  in  making  the  loan.^ 

88.  Upon  a  redelivery  for  a  temporary  purpose  the  debtor 
is  estopped  by  his  contract  to  say  that  the  creditor  has 
thereby  lost  his  property  in  the  security  redelivered.  Even  if 
the  debtor  collect  a  note  so  redelivered  to  him,  he  will  hold  the 
money  collected  in  trust  for  his  creditor,  so  that  his  discharge  in 
bankruptcy  will  not  extinguish  his  liability  to  his  creditor  so  in- 
curred. The  creditor  may  sue  for  the  money  so  collected  in  an 
action  for  money  had  and  received,  as  for  a  new  cause  of  action 
distinguished  from  the  original  debt,^  A  creditor's  special  prop- 
erty in  a  note  pledged  to  him  is  not  lost  by  his  returning  the 
note  to  his  debtor  upon  the  agreement  of  the  latter  to  return  it 
or  another  note  ;  and  upon  the  refusal  of  the  debtor  to  fulfil  the 
agreement,  the  creditor  may  maintain  against  him  an  action  for 
the  conversion  of  the  note,^     But  the  court  expressly  state  that 

1  Wyeth  V.  Nat.  Market  Bank,  132  ^  -^vhite  v.  Piatt,  5  Denio  (N.  Y.), 
Mass.  597.  269. 

3  Way     I'.      Davidson,     12     Gray 
60  (Mass.),  465.     See  §  44. 


BONA   FIDE   HOLDER    FOR    VALUE.  [§  89. 

no  inference  is  to  be  drawn  from  this  decision  that  the  creditor 
could  maintain  trover  against  a  third  person  to  whom  the 
debtor  might  have  transferred  the  note  after  receiving  it  from 
the  creditor.! 

In  all  the  cases  holding  that  a  creditor,  by  delivery  back  of 
the  pledged  security  for  collection  or  exchange,  does  not  lose 
special  property  in  it,  the  action  was  against  the  dKjbtor  him- 
self, or  his  assignee  in  bankruptcy,  who  took  only  the  debtor's 
rights. 

11.  Bond  fide  Holder  for  Value. 

89.  One  taking  negotiable  paper  before  maturity  as  col- 
lateral security  is,  for  all  practical  purposes,  the  owner  of  it, 
and  a  bond  fide  holder  for  value,  and  may  collect  it  without  re- 
gard to  the  equities  between  the  original  parties,  whether  aris- 
ing out  of  the  original  transaction  or  from  subsequent  dealings.^ 
Thus,  it  is  no  defence  for  the  maker  of  a  collateral  note  taken 
before  maturity  in  good  faith,  and  without  notice  of  any  infirmity 
in  it,  that  it  was  made  for  accommodation  ;  ^  or  was  misapplied 
by  an  agent  or  other  person  having  it  for  a  special  purpose  ;  ^  or 
was  pledged  by  the  holder  fraudulently,  or  in  violation  of  a  stat- 
ute making  his  assignment  of  it  a  criminal  offence;^  or  that  the 
maker  has  paid  the  note  to  the  payee.^ 

1  Citing  Bodenbainmer  v.  Newsom,  Wiltse,  12  lb.  Gil  ;  Jenkins  v.  Schaub, 
5  Jones  (N.  C),  107,  wbere  it  was  U  lb.  1  ;  Cook  v.  Hehns,  5  lb.  107; 
held  that  a  creditor,  holding  a  horse  Lyon  v.  Evvings,  17  lb.  61 ;  Kinney  v. 
in  pledge  and  allowing  his  debtor  to  Kruse,  28  lb.  183. 

drive  the  horse  a  few    miles  to  visit  ^  Buchanan  v.  International  Bank, 

a  relative,  could  not  maintain  trover  78  111.  500. 

for   the  horse   against  one  who  pur-  ^  Fisher    ;;.  Fisher,  98   Mass.  303 ; 

chased  it  of  the  debtor.  Stoddard  v.  Kimball,  6  Cush.  (^Nlass.) 

2  Swift  ('.Tyson,  16  Pet.  1  ;  Bell  v.  469  ;  5.  C.  4  lb.  604  ;  Zellweger  v. 
Bell,  12  Pa.  St.  235  ;  Irwin  v.  Bailey  Caffe,  5  Duer  (N.  Y.),  87  ;  Moody  v. 
(U.  S.  C.  C.  for  111.  1879),  11  Chicago  Andrews,  7  J.  &  S.  (N.  Y.)  302;  atf'd. 
L.  X.  376  ;  Dix  v.  Tully,  14  La.  Ann.  64  N.  Y.  641;  Farwell  v.  Imijorters' 
456;  Smith  v.  Isaacs,  23  lb.  454;  &  Traders'  Nat.  Bank,  16  N.  Y. 
Louisiana  State  Bank  v.  Gaiennie,  21  Weekly  Dig.  20. 

lb.  555  ;  Gardner  v.  Maxwell,  27  lb.  ^  Draper  v.  Saxton,  118  Mass.  427. 

561;  Bealle  v.  Southern  Bank  of  Ga.  And    see   Pratt  v.   Maynard,  116  lb. 

57  Ga.  274;  Bonaud  v.  Genesi,  42  lb.  388;  Stafford   v.  Whitcomb,  8  Allen 

639;  Exchange  Bank  v.  Butner,  60  lb.  (Mass.),  518. 

C54;  Griswoid  v.   Davis,  31  Vt.  390;  «  Mayo  r.  Moore,  28  111.  428. 
Curtis  V.  Mohr,  18  Wis.  615;  Bond  v. 

61 


§  90.]  PLEDGES   OF  NEGOTIABLE   PAPER. 

Although"  a  creditor  is  entitled  to  the  benefit  of  collateral 
security  provided  by  the  debtor  to  indemnify  a  surety,  if  the 
surety  sell  a  promissory  note  so  received  to  a  bond  fide  purchaser 
before  its  maturity,  and  appropriate  the  proceeds  to  his  own 
private  use,  and  not  to  the  payment  of  the  debt  for  which  he  is 
surety,  the  creditor  cannot  reach  the  note  in  the  hands  of  such 
purchaser. ,  Tlie  fact  that  the  purchaser  has  afterwards  trans- 
ferred the  note  to  another  for  no  value  received,  but  merely  for 
the  purchaser's  accommodation,  does  not  affect  the  case.  In 
either  case  the  note  is  beyond  the  reach  of  the  creditor.^ 

One  receiving  negotiable  paper  as  collateral  security  is  enti- 
tled to  be  protected  as  a  bond  fide  holder,  to  the  same  extent 
and  under  the  same  circumstances  as  one  who  becomes  owner 
of  such  paper.2 

A  pledgee  of  negotiable  paper  before  maturity  is  not  affected 
by  a  payment  made  by  the  maker  to  the  payee,  though  made  in 
good  faith,  without  knowledge  of  the  assignment  of  it  by  the 
payee  as  collateral  security  ;  ^  unless  the  maker  can  prove  that 
such  payment  was  made  with  the  knowledge  and  consent  of  the 
pledgee,  or  was  subsequently  ratified  by  him.* 

90.  Negotiable  paper  which  is  in  such  form  that  it  passes 
by  delivery  merely  may  be  effectually  pledged  by  the  holder, 
though  his  title  to  it  be  defective,  provided  the  pledgee  takes  it 
before  maturity  in  good  faith,  and  without  notice  of  any  defence 
or  defect  in  the  title.  "  Freedom  and  safety  in  the  negotiation 
of  such  paper  are  a  practical  necessity,  and  require  that  the  in- 
nocent holder  for  value  be  protected  against  a  defective  title  ; 
and  no  difference  must  be  made  whether  he  received  it  from  one 
who  obtained  it  honestly,  or  by  fraud,  finding,  or  theft."  ^  Ac- 
cordingly, where  the  owner  of  state  bonds  intrusted  them  with 
another  for  safe  keeping,  and  the  latter,  in  violation  of  his  trust, 
pledged  them  as  collateral  security  for  a  loan  made  to  him  by 
one  who  took  the  bonds  in  good  faith,  it  was  held  that  the  owner 

1  Commercial  Bank  of  Rochester  v.  ^  Best  v.  Crall,  23  Kans.  482. 
Shuart,  46  Barb.  (N.  Y.)  371.                        4  city  Bank    v.  Taylor   (Sup.  Ct. 

2  Bank  of   N.   Y.    v.  Vanderhorst,     Iowa,  1882),  15  Rep.  396. 

32  N.  Y.  553;  Brookma  n  v.   Metcalf,  ^  Tucker  v.    N.  H.   Sav.  Bank,  58 

lb.    591;    Belmont    Branch   Bank    v.  N.  H.   83;  Greenvvell  v.  Haydon,   78 

Hoge,  35  lb.  65.  Ky.  332. 
62 


BONA    FIDE   HOLDER   FOR    VALUE.  [§§  91-93. 

could  not  recover  them  without  paying  the  loan  they  were  given 
to  secure.^ 

The  same  rule  applies  where  a  mortgage  with  the  note  secured 
by  it  is  assigned  as  collateral  security.  The  mortgage  is  merely 
an  incident  of  the  note  secured  by  it,  and  a  transfer  of  the  note 
carries  the  mortgage  with  it.  The  assignee  has  the  rights  of  a 
holder  of  negotiable  paper.  The  note  in  this  respect  imparts  its 
character  to  the  mortgage.  The. freedom  from  infirmity,  which 
an  assignee  of  the  note  enjoys  when  he  has  taken  it  for  value 
and  in  good  faith  before  maturity,  is  not  destroyed  or  made  less 
by  his  taking  with  the  note  a  mortgage  intended  to  secure  it.^ 

91.  Possession  of  negotiable  paper  not  requiring  indorse- 
ment is  sufficient  to  enable  the  holder  to  pledge  it,  although  he 
has  no  title.  Thus,  if  United  States  bonds  deposited  with  a 
bank  for  safe  keeping  be  wrongfully  pledged  by  the  cashier,  the 
pledgee  acting  in  good  faith  takes  a  good  title.  If  afterwards 
the  cashier  fraudulently  obtains  possession  of  the  bonds  from  the 
pledgee,  the  latter  is  not  divested  of  his  title,  and  the  depositor 
has  no  better  claim  to  them  than  he  had  when  they  were  in  the 
pledgee's  possession.  The  fact  that  by  the  second  fraudulent  act 
of  the  cashier  the  bonds  are  replaced  in  the  vaults  of  the  bank, 
from  which  they  had  been  dishonestly  removed,  does  not  put  the 
depositor  in  the  position  which  he  would  have  occupied  had 
the  deposit  been  respected  from  the  first.^ 

92.  A  note  payable  to  order  may  be  pledged  by  the  payee 
by  delivery  merely  without  indorsement,  so  as  to  give  an  equi- 
table security  good  as  between  the  parties.  The  pledge  of  a  note 
in  this  manner  operates  as  an  equitable  assignment  of  it  to  the 
pledgee,  who,  under  common  law  rules,  can  maintain  a  suit  upon 
it  in  the  name  of  the  pledgor,  and,  under  the  code  practice  in 
several  states,  may  maintain  such  action  in  his  own  name.^ 

93.  But  a  mere  deposit  as  collateral  of  commercial  paper, 
payable  to  order  and  not  indorsed,  does  not  operate  to  divest 

^  Tucker  u.  N.  II.  Sav.  Bank,  .08  N.  .09;    International    Bank    v.    German 

il-  83.  Biink,  3  lb.  3G2. 

2  Paige  V.  Chapman,  .OS  N.  II.  333.  *  Van  Riper  v.  Baldwin,   19    IIuu 

«  Kingling  v.  Kohn,  4    Mo.   App.  (N.  Y.),  344. 

63 


§§  94,  95.]  PLEDGES    OF   NEGOTIABLE   PAPER. 

the  payee  of  his  legal  ownership;  and,  therefore,  in  a  suit  upon 
such  note  the  maker  may  set  up  in  defence  any  equitable  de- 
fences he  has  against  the  payee.^  The  holder  in  such  case  has 
only  an  equitable  title,  tl^e  legal  title  remaining  in  the  payee,  in 
whose  name  a  suit  must  ordinarily  be  prosecuted,  and  against 
whom  any  equitable  defence  may  be  set  up  by  the  maker.  Thus, 
it  is  a  good  defence  on  his  part  that  after  the  note  was  pledged 
he  had  paid  it  to  the  payee  in  good  faith,  and  without  notice  of 
the  pledgee's  claim. '-^ 

94.  A  pledgee  of  negotiable  paper  can  give  good  title  to 
it.  Here  is  another  distinction  between  a  pledge  of  negotiable 
securities  and  one  of  corporeal  property ;  for  while  a  pledgee  of 
the  latter  species  of  property  can  convey  no  greater  right  or  title 
than  he  has,  "unless  he  is  himself  invested  with  the  apparent  ab- 
solute title  by  an  instrument  in  writing  executed  by  the  pledgor, 
a  pledgee  of  negotiable  securities,  by  reason  of  their  negotiability, 
can  pass  a  good  title,  by  delivery  or  indorsement,  to  an  inno- 
cent third  person  having  no  knowledge  of  the  claims  of  the  true 
owner.3  The  title  of  such  third  party  depends  not  upon  the 
interest  or  authority  of  the  pledgee,  but  upon  the  act  of  the 
pledgor,  in  making  the  pledgee  the  apparent  absolute  owner  of 
the  securities  ;  and  the  pledgor  thereby  precludes  himself  from 
disputing  the  title  or  authority  he  has  so  conferred.  The  owner 
of  negotiable  securities,  having  allowed  them  to  go  into  the  mar- 
ket with  the  transferable  qualities  of  negotiable  paper,  it  does 
not  lie  in  the  mouth  of  him  who  offered  them  to  the  world  in  that 
shape  to  deny  the  effect  of  his  own  act. 

95.  If  a  pledgee  holding  the  note  of  a  third  person  as  se- 
curity for  his  debtors  note  transfer  the  collateral  note,  re- 

1  Hedges  i'.  Sealy,  9  Barb.  (N.  Y.)  calf,  5  Gray,  306;  Stoddard  v.  Kim- 
214;  Snow  i>.  Fourth  Nat.  Bank,  7  liob.  ball,  6  Cush.  469;  Fisher  v.  Fisher, 
(N.  Y.)  479;  Easter  v.  Minard,  26111.  98  Mass.  303;  Wheeler  v.  Guild,  20 
494.  And  see  Casey  v.  Cavaroc,  96  Pick.  545.  Other  States:  Iowa  Col- 
U-  S.  467.  lege  v.  Hill,  12  Iowa,  462;  Blake  v. 

2  Dunn  V.  Meserve,  58  N".  H.  429.       Buchanan,    22    Vt.    548  ;    Valette    v. 
3  New  York:  Ballard  v.  Burgett,     Mason,  1   Ind.  288;  Coit  v.  Humbert, 

40  N.  Y.  314;  McNeil  v.  Tenth  Nat.  5  Cal.  260  ;  Kobinson  v.  Smith,  14  lb. 

Bank,  46  N.Y.  325;  overruling  .S.  C.  94;    Matthews  v.   Rutherford,    7    La. 

55  Barb.  59;  Moore  U.Miller,  6  Lans.  Ann.    225;    Patterson   v.   Deering,   1 

396.  Massachusetts:  Sargent  u.  IMet-  Marsh.  (Ky.)  326. 

64 


BONA   FIDE   HOLDER   FOR   VALUE.  [§  96. 

taining  the  principal  note,  the  transfer  as  between  liim  and  the 
pledgor  operates  jt?ro  tanto  as  payment  of  the  original  debt ;  ^  and 
it  is  immaterial  in  this  respect  whether  the  collateral  note  be  over- 
due or  not.  If,  after  such  transfer  of  the  collateral  note,  the 
pledgee  transfer  the  principal  note  to  another  person,  and  this 
note  be  overdue  at  the  time,  the  assignee  takes  it  subject  to  the 
equities  existing  between  the  pledgor  and  pledgee  in  regard  to 
the  collateral  note;  that  is,  the  assignee  takes  it  subject  to  a 
credit  pro  tanto,  or  subject  to  payment,  according  to  the  amount 
of  the  collateral.^  If  the  principal  note  be  transferred  before  its 
maturity,  but  after  a  transfer  of  the  collateral  note,  and  the  trans- 
feree take  it  for  value  without  notice  of  the  collateral  note,  he 
acquires  a  title  to  it  subject  to  no  equities  existing  between  prior 
parties.  In  such  case  the  loss  would  fall  upon  the  pledgor,  who 
had  by  his  negligence  enabled  the  pledgee  to  transfer  both  notes, 
and  to  give  good  title  to  both  without  notice  that  one  was  col- 
lateral to  the  other.  If  the  original  note  be  first  transferred,  the 
assignee  is  entitled  to  the  collateral  note,  if  this  be  still  in  the 
hands  of  the  pledgee.^ 

96.  An  agent  holding  negotiable  paper  for  collection  or 
safe  keeping  can  effectually  pledge  it  for  his  own  debt,  in 
fraud  of  the  true  owner,  if  it  be  in  such  form  that  the  title  will 
pass  by  delivery.  Thus,  if  a  note  or  bill  of  exchange  be  indorsed 
in  blank  by  the  owner,  and  placed  in  the  hands  of  a  banker  for 
collection,  the  latter  can  pledge  it  for  a  debt  of  his  own.*  In 
some  cases  it  has  been  sought  to  make  a  distinction  between  a 
pledge  and  a  sale  of  such  paper  by  the  agent ;  but  there  is  no 
such  distinction,  and  the  courts  have  refused  to  recognize  one.^ 

1  Cocke  V.  Chaney,  14  Ala.  65;  and  N.  H.  Sav.  Bank,  58  N.  H.  83  ;  Mor- 
see  Harris  v.  Johnston,  3  Cranch,  311.     ris  v.  Preston,  93  111.  215. 

2  Ware  V.  Russell,  57  Ala.  43.  5  <.  xij^  peculiar  doctrine,  as  e.\- 
8  Ware  v.  Russell,  Hupra.  pressed  in  Jenness  v.  Bean,  10  N.  H. 
*  Treuttel   v.  Barandon,    8   Taunt.     266,  and  Williams  y.  Little,  1 1  N.  H.  66, 

100;  Lloyd  v.  Sigourney,  5  Bing.  525;  that  negotiable  paper,  pledged  to  the 

Sigourney  v.  Lloyd,  8  B.  &  Cr.  622;  holder  as  collateral    security,   is   not, 

Goodman  v.  Harvey,  4  Ad.  &  E.  870;  in  the  hands  of  an  innocent  pledgee, 

Wookey    i-.    Pole,    4    B.    &   Aid.    1;  exonerated   from    defences   or  delec- 

Brandao  i;.  Barnett,  2  Scott  N.  R.  96;  tive  title,    is    not    recognized   outside 

(iorgicrt).  Mieville,  3  B.  &  Cr.  45;  Col-  of   New   Hampshire,  and   within  this 

lins  V.  Martin,  1  B.  &  P.  G48;  Clement  state  has  been  so  limited  as  not  to  in- 

V.  Leverett,  12  N.  11.  317;  Tucker  i'.  elude  cases  like  the  one  under  consid- 
5  Qh 


§  07.]  PLEDGES  OF  NEGOTIABLE  PAPER. 

The  agent's  breach  of  confidence  is  as  great  in  one  case  as  in  the 
other.  "  He  may  sell  because  the  property  has  been  intrusted 
to  him,  and  he  may  pledge  for  the  same  reason  ;  for  he  who  has 
the  property  has  a  disposing  power,  and  tjie  law  has  not  limited 
it  to  be  used  in  any  particular  manner."  ^ 

97.  Misapplication  by  debtor's  agent.  —  Neither  is  the 
lender  of  money  upon  collateral  securities,  whether  negotiable 
or  not,  bound  to  see  that  an  agent  or  other  person,  acting  for 
the  borrower,  applies  the  money  to  the  use  of  his  principal. 
Thus,  the  owner  of  a  bond  and  mortgage,  wishing  to  obtain  a 
loan  upon  them,  placed  them  in  the  hands  of  an  agent,  wlio  gave 
a  receipt  that  be  had  received  the  same  to  raise  money  upon  ;  or 
if  he  should  give  the  money  to  the  owner,  or  pay  it  for  him  at 
liis  request,  he  should  hold  the  same  as  security  until  repaid. 
The  agent  procured  the  money  from  a  third  person,  and  as- 
signed him  the  bond  and  mortgage  ;  and  it  was  held  that  such 
lender  was  not  bound  to  see  what  disposition  the  agent  made  of 
the  money.  The  borrower,  having  given  credit  to  the  agent,  must 
look  to  him  for  the  money,  and  not  to  the  lender  dealing  with 
the  agent  in  good  faith.^  And  so  where  the  payee  of  certain  notes 
secured  by  mortgage  indorsed  them  in  blank  and  placed  them  in 
the  hands  of  a  banker  as  his  agent,  to  collect  the  interest  and  to 

eration.  In  Clement  v.  Leverett,  12  earlier  application,  and  of  paramount 
N.  H.  31 7,  an  agent  of  the  defendants,  influence  in  this  case  (Clement  v.  Lev- 
intrusted  by  them  with  bills  drawn  by  erett).  The  defendants  intrusted  Bur- 
him  payable  to  his  own  order,  and  by  ley  (their  agent)  with  these  bills,  ac- 
them  accepted  to  enable  him  to  raise  cepted  by  them,  and  thereby  enabled 
money  for  them,  pledged  the  bills  to  a  him  to  hold  himself  out  as  the  owner 
bond  Jide  holder  to  secure  money  bor-  of  them.  .  .  .  Assuming  that  Burley 
rowed  for  his  own  use.  It  was  held  abused  the  confidence  reposed  in  him, 
that  the  defendants,  having  enabled  the  defendants,  who  intrusted  him  with 
their  agent  to  hold  himself  out  as  these  negotiable  evidences  of  debts 
owner,  were  bound  by  the  pledge,  and  against  themselves,  must  bear  the  loss. 
liable  to  the  pledgee.  Parker,  C.  J.,  ...  The  plaintiff  is  a  bona  fide  holder 
delivering  the  opinion,  says,  of  Jen-  without  notice.'  "  Tucker  r.  New 
ness  V.  Bean  and  Williams  v.  Little,  Hampshire  Savings  Bank,  58  N.  H. 
that  the  court  advanced  the  doctrine  83,  85,  per  Allen,  J. 
of  those  cases,  because  the  general  i  Per  Eyre,  C.  J.,  in  Collins  v.  Mar- 
ownership  or  property  of  the  bill  or  tin,  1  B,  &  P.  648. 
note  pledged  as  collateral  security  re-  2  Westervelt  v.  Scott,  11  N.  J.  Eq. 
mained  in  the  indorser.  'But,'  he  re-  80. 
marks, '  there  is  another  principle,  of 

66 


BONA   FIDE   HOLDER   FOR   VALUE.  [§§  98-100. 

sell  them  for  his  benefit,  and  the  agent  pledged  them  to  secure  a 
debt  of  his  own,  it  was  held  that  the  owner  of  the  notes  could  not 
invalidate  the  title  of  the  pledgee,  who  had  acquired  the  notes 
in  the  usual  course  of  business  from  one  who  apparently  had  the 
absolute  title. ^ 

98.  A  statute  declaring  the  assignment  of  collateral  se- 
curity before  the  debt  secured  is  due  a  criminal  offence  -  does 
not  affect  the  title  of  an  innocent  assignee,  who  takes  such  se- 
curity for  value,  and  without  notice  of  the  fraud  of  the  assignor.^ 

99.  A  note  founded  upon  a  consideration  made  illegal  by 
statute  — as,  for  instance,  a  note  given  for  liquors  sold  in  viola- 
tion of  law,  but  not  declared  void  by  the  express  terms  of  the 
enactment  —  is  not  open  to  defence  in  the  hands  of  one  to  whom 
the  payee  has  indorsed  it  before  maturity  as  collateral  security 
for  a  preexisting  debt.  Mere  illegality  of  consideration  does  not 
extend  to,  or  affect  the  rights  of,  an  indorsee  for  value  and  with- 
out notice.'* 

100.  Notice  of  equities.  —  Actual  knowledge  on  the  part  of 
one  taking  negotiable  paper  before  maturity,  that  the  assignor 
held  it  as  collateral  security,  would,  of  course,  subject  the  as- 
signee to  the  equities  of  the  owner  of  such  security.^  Such 
knowledge  might  be  shown  by  circumstances  ;  but  the  circum- 
stances must  be  such  that  actual  knowledge  can  be  inferred  from 
them.  Thus,  in  a  modern  case,^  two  circumstances  were  relied 
upon  to  subject  a  note  so  assigned  to  the  equitable  rights  of  tiie 
pledgor.  The  first  was  that  the  assignee  of  the  note  knew  that 
the  assignor  was  a  broker.  But  the  court  said  it  is  no  ground  to 
presume  or  suspect  that,  merely  because  a  man  is  a  broker,  he 
has  no  negotiable  paper  in  his  hands  except  such  as  he  liolds  as 
collateral  security,  and  has  no  right  to  transfer.  The  next  cir- 
cumstance was  that,  when  the  pledgee  transferred  the  note,  he 

1  Morris  v.  Preston,  93  111.  215.  *  Cobb  v.  Doylc,  7  R.  I.  550;  T:iy- 

^  As  does  Cien.  Sts.  of  Mass.  c.  ICl,  lor  r.  Page,  6  Allen  Mass.),  8G. 

§  64;  P.  S.  1«82,  c.  203,  §  72.  ^  PatU;rson    v.    Deeriiij;    1     .Marsh. 

8  Draper  v.  Sa.xton,  118  Mass.  427;  (Kv.)  .•}2(;. 

Gardner  v.   Gager,   1    Allen    (Mass.),  "  Gardner  v.  Gager,  siijn-a. 

502. 

G7 


§  101.]  PLEDGES   OF  NEGOTIABLE   PAPER. 

stated  to  tlie  assignee  that  at  or  before  its  maturity  he  should 
wish  to  change  it,  and  substitute  other  security  ;  and  it  was  con- 
tended that  this  request  indicated  that  he  had  no  right  to  trans- 
fer it. 

But  in  this  case  the  pledgee  borrowed  of  the  assignee  upon  the 
note  only  a  part  of  the  amount  which  the  note  was  given  fo^, 
and  he  borrowed  it  for  a  time  extending  beyond  the  maturity 
of  that  note.  Therefore,  the  request  would  indicate  that  the 
pledo-ee  owned  the  note,  and  desired  to  collect  it  and  use  the 
money  at  its  maturity.    At  least,  it  did  not  indicate  the  contrary. 

101.  The  fact  that  a  note  taken  as  collateral  security  bears 
no  indorsement  of  several  instalments  of  interest  that  have 
fallen  due  does  not  render  it  subject  to  equities  existing  be- 
tween the  original  parties  to  it.^  Even  if  failure  to  pay  interest 
amounted  to  a  dishonor  of  the  note,  it  would  only  affect  one  who 
has  knowledge  of  the  fact.  "  Payment  of  interest,"  say  the  court, 
"  is  not  always  indorsed,  and  other  evidence  is  often  relied  on  to 
prove  it.  Want  of  indorsement  does  not  apprise  the  party  to 
whom  such  note  is  transferred  that  there  has  been  no  payment ; 
and  when  the  note  is  only  taken  as  collateral,  and  accuracy  is 
not  lequired  in  ascertaining  the  amount  due  for  interest,  the  fact 
that  overdue  interest  is  not  indorsed  might  have  slight  influence 
in  putting  the  purchaser  upon  his  inquiry.  It  has,  indeed,  been 
held  by  this  court  that  a  note,  the  principal  of  which  is  payable 
by  instalments,  is  overdue  when  the  first  instalment  is  overdue 
and  unpaid,  and  is  thereby  subject  to  all  equities  between  the 
original  parties.^  Such  a  note  is  a  single  contract,  and  the  party 
to  whom  it  is  transferred  must  take  it  with  notice  that,  as  to  the 
overdue  instalment,  the  maker  may  have  a  justifiable  cause  for 
withholding  payment,  which  may  affect  the  whole  contract.  But 
in  its  eifect  upon  the  credit  of  a  note  it  is  manifest  that  a  failure 
to  pay  interest  is  not  to  be  ranked  with  a  failure  to  pay  principal. 
Interest  is  an  incident  of  the  debt,  and  differs  from  it  in  many 
respects." 

But  the  court,  while  refusing  to  hold  that  the  non-payment  of 
interest  upon  the  collateral  note  was  not  sufficient  to  discredit  the 
note,  and  subject  the  holder  to  antecedent  equities,  held  that  it 

1  National  Bank  of  N.  A.  v.  Kirby,  2  Vinton  v.  King,  4  Allen  (Mass.), 

108  Mass.  495.  562. 

68 


BONA   FIDE   HOLDER   FOR   VALUE.  [§  102. 

was  a  fact  proper  to  be  considered  by  the  jury,  in  connection  with 
other  circumstances,  on  the  question  whether  the  holder  took 
the  note  in  good  faith  and  without  notice  of  existing  defences. 

102.  A  note  which  states  that  it  is  to  be  held  as  collateral 
security  is  not  negotiable.^  And  so  a  memorandum  put  upon 
a  promissory  note,  by  the  maker  of  it,  before  delivery,  that  it  is 
given  as  collateral  security,  destroys  its  negotiability  ;  for  the 
words  indicate  that  there  may  be  a  contingency,  namely,  the  per- 
formance of  the  undertaking  to  which  it  is  collateral,  in  which  the 
note  would  not  be  payable  ;  and  so  it  lacks  that  element  of  nego- 
tiability which  requires  that  at  all  events  a  sum  certain  shall  be 
payable  at  a  time  certain.  Therefore  an  action  cannot  be  main- 
tained upon  such  a  note  by  an  indorsee,  nor  can  an  indorser  of 
it  be  charged  and  held  liable  as  an  indorser  of  negotiable  paper. 

A  memorandum  on  the  back  of  a  promissory  note,  signed  in 
the  name  of  a  partnership,  that  the  note  was  given  as  security 
for  another  note  of  the  same  date  and  amount,  and  payable  at 
the  same  time,  made  by  a  third  person,  is  sufficient  to  charge  a 
bank  taking  both  notes  as  security  for  a  loan  with  notice  that 
the  partnership  note  was  given  as  security  only  for  the  payment 
of  the  other  note.  In  an  action  by  the  bank  against  the  partner- 
ship, the  burden  is  upon  the  bank  to  show  that  the  note  was 
given  with  the  consent  of  all  the  partners,  or  in  payment  of  a 
debt  contracted  in  the  course  of  the  partnership  business;  and, 
therefore,  if  it  appear  that  the  note  was  fi'audulently  signed  by 
one  of  the  partners  without  the  knowledge  of  the  other  partners, 
the  bank  cannot  recover  upon  it.^ 

Parol  evidence  is  admissible  to  show  what  debts  are  secured 
by  a  note  which  contains  upon  its  face  a  memorandum  that  it  is 
"to  be  used  as  collateral  security  "  to  notes  of  a  person  named. 
The  purpose  of  such  evidence  is  to  correctly  ap{)ly  the  note  to 
the  transactions  the  note  itself  indicated  it  was  intended  to  cover, 
and  coiifiiii;  it  to  the  very  claims  it  purported  to  secure,  and  not 
to  alter  its  terms.* 

*  Haskell    v.    L:unbert,     IG     Gray  ^  National    Security    Hank    v.  Mc- 

(MaHs.),  i,'J2;  liohiiis  o.  May,  II   Ad.  Donald,  127  Mass.  82. 

&  K.  2i;j.  ■•  (liirton  V.   Union    City   Dank,  34 

^  CoMtclo  r.  Crowcdl,  127  Mass.  2'J3;  Mich.  279. 
Haskell  V.  Laniburt,  nupra. 

69 


§  103.]  PLEDGES  OF  NEGOTIABLE   PAPER. 

103.  But  a  recital  in  a  negotiable  note  that  the  maker  has 
deposited  collateral  security  for  its  payment,  and  given  au- 
thority to  sell  the  same  on  non-payment  of  the  note,  does  not 
destroy  its  negotiable  character.^  "The  only  contract  as  to  col- 
lateral security,  recited  in  this  note,  relates  to  what  shall  be  done 
after  the  note  becomes  due,  if  it  is  unpaid.  If,  as  between  the 
maker  and  the  original  holder  who  received  the  collateral  security, 
there  has  been  any  payment  before  the  note  became  due,  by  the 
receipt  of  sums  collected  upon  the  security,  that  cannot  affect  one 
to  whom  the  note  has  been  transferred  before  maturity,  without 
notice.  It  will  have  been  done  in  pursuance  of  some  agreement 
which  does  not  appear  on  the  face  of  the  note,  and  of  which, 
therefore,  he  bad  no  notice.  He  is  entitled  to  occupy  the  same 
position  that  he  would  if  the  holder  of  a  negotiable  note  in  the 
ordinary  form  had  received  a  sum  which,  as  between  himself  and 
the  maker,  should  be  applied  to  the  note,  and  had  afterwards 
transferred  it  to  them  without  notice  and  before  maturity.  Nor 
does  the  fact,  if  this  note  is  unpaid,  that  the  amount  due  after 
maturity  will  depend  upon  the  action  of  the  holder  of  the  collat- 
eral securities,  by  reason  of  his  option  to  sell  and  realize  such  se- 
curities, and  will  thus  be  uncertain,  destroy  its  negotiable  char- 
acter before  maturity.  After  a  negotiable  note  has  become  due 
it  is  still  transferable,  although  it  has  lost  the  great  characteristic 
which  gives  value  to  it  as  commercial  paper.  The  pui'chaser, 
although  he  may  sue  upon  it  in  his  own  name,  then  receives  it 
with  full  notice  of  all  defects,  and  subject  to  every  equitable 
defence  which  the  promisor  may  make  against  the  promisee.  If 
the  note  embodies  a  promise  to  pay  money,  definite  as  to  time, 
person,  and  amount,  it  is  not  the  less  negotiable,  because,  if  un- 
performed at  maturity,  certain  collateral  securities,  the  proceeds 
of  which  will  then  be  applicable  to  the  note,  may  be  realized,  and 
when  realized,  will  affect  the  amount  which  will  thereafter  be  due 
on  it."  2 

And  so  a  promissory  note  which  recites  that  the  maker  has 
deposited  bonds  as  collateral  security  for  its  payment,  with  power 
to  sell  them  in  a  certain  manner  and  upon  specified  notice  upon 
the  non-payment  of  the  note  at  maturity,  is  negotiable,  although 
it  also  contains  an  agreement  that  the  maker  will  pay  any  de- 

1  Towner.  Rice,  122  Mass.  67.  2  Towne  v.  Rice,  supra,  per  Dev- 

ens,  J. 

70 


BONA   FIDE   HOLDER   FOR   VALUE.  [§  104. 

ficiency  necessary  to  satisf}^  the  note  after  such  sale.^  Such  a 
note  is  payable  absohitely,  without  any  contingency,  and  is  not 
payable  out  of  a  particular  fund.  "  It  is  not  the  less  a  promis- 
sory note  from  a  memorandum  of  another  kind  being  added,  im- 
porting that  a  collateral  security  has  also  been  given."  ^  The 
collateral  contract  relates  solely  to  the  money  promised  to  be 
paid,  is  additional  to  the  principal  contract,  and  is  not,  in  terms 
or  legal  effect,  a  modification  of  it.  It  merely  provides  a  security 
for  the  payment  of  the  money,  and  prescribes  the  extent  of  the 
maker's  liability  after  the  securit}^  has  been  exhausted.  But  the 
law  would  have  implied  the  same  liability  without  any  special 
contract.  "  Such  an  instrument  is  quite  different  from  one  which, 
in  addition  to  a  note  perfect  in  form,  should  contain  a  contract 
having  no  relation  to  the  money  promised  to  be  paid,  and  wholly 
independent  of  it.  If  the  additional  contract  was  for  the  sale  or 
leasing  of  land,  or  the  sale  or  exchange  of  personal  property,  or 
related  to  any  other  distinct  and  independent  subject,  there  would 
be  many  reasons  for  declaring  the  instrument  not  negotiable, 
which  can  have  no  application  to  that  under  consideration."^ 

104.  Even  gross  negligence  on  the  part  of  one  taking  ne- 
gotiable paper  as  collateral  security  is  not  alone  sufficient  to 
defeat  his  title.  He  is  not  bound  to  make  inquiry  as  to  the  au- 
thority of  the  person  offering  the  paper  to  pledge  it.  Nothing 
less  than  proof  of  knowledge  of  facts  that  show  want  of  such  au- 
thority will  invalidate  the  pledgee's  title.  Gross  negligence,  not 
amounting  to  wilful  and  fraudulent  blindness,  while  it  is  evi- 
dence of  mala  fides,  is  not  the  same  thing.*     Nothing  short  of 

1  Arnold  v.  Rock  River  Valley  considered;  ISIaitland  t\  Citizens' N;it. 
Union  R.  R.  Co.  5  Duer  (N.  Y.),  207.  Bank  of  Baltimore,  40  ]\Id.  .540 ;  Cit- 

2  Wise  V.  Charlton,  4  Ad.  &  E.  786,  izens'  Nat.  Bank  of  Baltimore  v. 
791,  per  Coleridge,  J.  See,  also,  Fan-  Hooper,  47  lb.  88;  Iowa  College  r. 
court  w.  Thorne,  9  Q.  B.  312.  Hill,     12     Iowa,    462;     Jolins.m     v. 

'  Arnold    v.    Rock    River    Valley  Way,    27    Ohio    St.    374  ;     Smith  v. 

Union    R.    R.   Co.   supra,    per    Bos-  Livinj^ston,   111    Mass.  342;  Belmont 

worth,  J.  Branch  Bank    v.  Iloge,   35   N.  Y.  65; 

*  Goodman   v.    Harvey,    4    Ad.    &  Woolfulk    v.    Bank    of    America,    10 

E.  870;    Uther  v.  Rich,   10   lb.   784;  Bush   (Ky.),  504  ;  Benoir  v.   Paciuin, 

Raphael    v.  Bank    of  Eng.   17  C.   B.  40  Vt.  199;  Comstock  v.  Hannah,   76 

161;  Murrayv.  Lardner,  2  Wall.  110;  III.   530;    Shreeves  v.  Allen,   79    111. 

Goodman  v.  Simonds,  20  How.  313,  553.     These  cases  in  Illinois   accept 

where  the  subject  is  fully  and    ably  the  doctrine  abovcd  Btated,  and  limit 

71 


§  105.] 


PLEDGES   OF   NEGOTIABLE   PAPER. 


fraiul,  or  oross  negligence  attended  with  mala  fides  on  the  part 
of  the  taker  of  the  instrument,  will  invalidate  his  title.  Actual 
knowledge  on  his  part  of  facts  and  circumstances  which  show 
tliat  the  holder  did  not  act  in  good  faith  in  taking  the  security 
must  be  proved  to  defeat  his  title  ;  and  the  question  whether  he 
lias  such  knowledge  is  a  question  of  fact  for  the  jury.^ 

105.  Knowledge  of  want  of  authority.  —  But  if  one  taking 
negotiable  paper,  by  way  of  collateral  security,  has  knowledge 
that  the  person  offering  it  has  no  authority  to  pledge  it,  or  has 
knowledge  of  facts  from  which  a   jury  might  find  such  knowl- 

instrument,  or  to  use  the  same  for 
his  own  benefit,  then  the  holder,  as 
against  the  acceptor  or  maker,  is  not 
entitled  to  recover.  Gill  v.  Cubitt,  3 
B.  &  Cr.  4G6. 

"  For  a  brief  period  that  rule  was 
followed,  but  it  was  never  satisfactory, 
and  at  the  end  of  twelve  years  was  dis- 
tinctly overruled  in  the  tribunal  where 
it  was  first  promulgated.  Goodman  v. 
Harvey,  4  Ad.  &  E.  870  ;  Arbouin  v. 
Anderson,  1  Ad.  &  E.N.  S.  498.  We 
must  hold,  said  Lord  Denman  in  the 
case  last  cited,  that  the  owner  of  a  bill 
of  exchange  is  entitled  to  recover  upon 
it  if  he  has  come  by  it  honestly,  and 
that  that  fact  is  implied  prima  facie 
by  possession,  and  that,  to  meet  the 
inference  so  raised,  fraud,  felony,  or 
some  such  matter,  must  be  proved. 

"  Abundant  authority  to  support  the 
proposition,  that  the  case  which  for  a 
period  relaxed  that  rule  has  been  over- 
ruled for  more  than  half  a  century,  is 
found  in  the  reported  cases  already 
cited  ;  and  Mr.  Chitty  says  that  the 
old  rule  of  law,  that  the  holder  of  a 
negotiable  security  transferable  by  de- 
livery can  give  a  title,  which  he  him- 
self does  not  possess,  to  a  person  tak- 
ing the  same  bond  fide  for  value,  is  by 
those  decisions  again  reestablished  in 
its  fullest  extent.  Chitty  Bills  (13th 
ed.),  257;  Worcester  County  Bank  v. 
Dorchester  &  Milton  Bank,  10  Cush. 
(Mass.)  491." 


or  disapprove  of  the  earlier  cases  in 
that  state,  wliich  seem  to  adopt  the 
contrary  doctrine,  such  as  Russell  v. 
lladduok,  3  Gilm.  233;  Sturges  v. 
Metropolitan  Nat.  Bank,  49  111.  221  ; 
Taylor  r.  Atchison,  54  111.  196. 

^  Railroad  Co.  v.  National  Bank, 
102  U.  S.  14,  39,  per  Clifford,  J.  "  In- 
dorsers  of  negotiable  securities  enjoyed 
the  protection  of  that  rule  for  ages  be- 
fore any  successful  attempt  was  made 
to  annex  to  it  any  qualification,  un- 
less it  appeared  that  the  consideration 
was  illegal,  or  that  the  instrument  was 
fraudulent  in  its  inception,  or  that  it 
had  been  lost  or  stolen  before  it  came 
to  the  possession  of  the  holder.  Hin- 
ton's  Case,  2  Show.  235  ;  Anonymous, 
1  Salk.  126;  Miller  v.  Race,  1  Burr. 
452;  Grant  r.  Vaughan,  3  lb.  1516; 
Peacock  ?».  Rhodes,  2  Doug.  633; 
Lawson  r.  Weston,  4  Esp.  56. 

"  Throughout  the  whole  period  cov- 
ered by  those  decisions,  it  was  uni- 
versally understood  that  the  title  of 
the  hand  fide  holder  was  unaffected 
by  any  equities  between  the  antece- 
dent parties  ;  but  it  was  subsequently 
decided  that  if  the  indorser  of  the  in- 
strument had  no  valid  title  to  the 
same,  and  that  such  facts  and  cir- 
cumstances were  known  to  the  in- 
dorsee, at  the  time  of  the  transfer,  as 
would  have  caused  a  person  of  ordi- 
nary prudence  to  suspect  that  the  in- 
dorser had  no  right  to  transfer  the 

72 


BONA    FIDE   HOLDER   FOR    VALUE.  [§  106. 

edge,  his  taking  of  tlie  paper  as  security  for  a  loan  actually 
made  imparts  no  title  as  against  the  real  owner.'  Thus,  if  a 
bill-broker  offer  a  note  for  sale  at  his  own  bank,  and  states  that 
he  is  limited  to  a  certain  rate  of  discount,  and  the  bank  declines 
to  purchase  at  that  rate,  and  the  same  day  the  broker  pledges 
the  note  to  the  bank  as  collateral  security  for  a  loan,  a  jury 
would  be  authorized  to  find  that  the  bank  had  knowledge  that 
the  broker  had  possession  of  the  paper  only  for  the  purpose  of 
selling  it,  and  had  no  authority  to  pledge  it.^ 

Whether  the  holder  of  such  paper  had  notice  at  the  time  of 
taking  it  of  want  of  authority  in  the  payee  to  use  it  as  his  own 
is  a  question  of  fact  for  the  jury  ;  but  the  burden  of  proof  is  upon 
the  defendant  who  seeks  to  impeach  the  plaintiff's  title  by  alleg- 
ing notice  of  the  fraud  or  breach  of  duty  by  the  payee.^  The 
transfer  of  negotiable  paper  before  maturity  raises  the  presump- 
tion of  the  want  of  notice  of  any  defence  to  it ;  and  this  pre- 
sumption prevails  until  overcome  by  proof.* 

106.  For  future  advances.  —  A  promissory  note  pledged  be- 
fore maturity,  as  collateral  security  for  future  advances,  is  good 
in  the  creditor's  hands  for  all  advances  made  before  he  has  notice 
of  equities  between  the  original  parties  ;  but  not  for  advances 
made  after  such  notice,^  unless  the  creditor  at  the  time  of  taking 
the  security  bound  himself  to  make  advances  to  a  definite  amount. 
Accommodation  paper  may  be  pledged  for  future  advances,  and 
may  be  enforced  under  tlie  same  circumstances  that  other  paper 
would  be  enforced  ;^  and  it  is  no  defence  that  the  pledgee  had 
knowledge  at  the  time  of  taking  the  notes  that  they  were  made 
for  accommodation.'' 

One  receiving  a  promissory  note  as  collateral  security  for  in- 
dorsements afterwards  to  be  made  is  a  bond  fide  holder  in  the 

1  Citizfiis' Nat.  Bank  of  I};iItimore  *  Carpenter  v.  Loiij^an,  16  Wall. 
V.   Hooper,    47   Md.   8S;  Maitland    v.      271. 

Citizens'  Nat.  Hank  of  Baltimore,  40  ^  Kerr  v.  Cowen,   2   Dev.  (N.  C.) 

II).  ."i  10,  508;  Patterson  v.  Deering,  1  Eq.  .3.01;. 

Marsh.  (Ky.)  326.  o  Buehanan  v.  International  Bank, 

2  Citizens'  Nat.  Bank  of  Baltimore  78  III.  500. 

V.  Hooper,  .supra.  ^   Buclianan  v.  International   Bank, 

8  Goodman    v.    .Simonds,    20  How.     .viz/^my  JMattliews  t-.  Rntln-rfonl,  7  J.,a. 

34.3;  Maitland  v.  Citizens'  Nat.  Bank     Ann.  22');   .Maitland  v.  Citizens' Nat. 

of  Baltimore,  40  Md.  540.  Bank  of  Baltimore,  supra. 

73 


§  107.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

commercial  sense  ;  but  he  can,  of  course,  recover  upon  it  only  the 
amount  clue  on  the  indorsements  against  which  it  was  designed 
to  secure  him.^ 

Of  course,  paper  taken  as  collateral  security  after  its  maturity 
is  subject  to  any  defence  which  the  maker  of  it  could  have  set 
up  to  it  if  it  had  remained  in  the  hands  of  the  payee.^ 

III.  Collateral  for  a  Preexisting  Debt. 
107.  Whether  a  previous  debt  is  suflBcient  to  constitute 
a  holding  for  value  of  collateral  paper  is  a  question  upon 
which  there  has  been  a  conflict  of  authority  in  this  country  since 
the  decision  in  Bay  v.  Coddington.^  This  decision  introduced 
an  exception  in  the  general  rule  of  law  respecting  negotiable 
paper,  that  one  who  has  taken  it  before  maturity  in  the  usual 
course  of  business,  for  a  valuable  consideration,  is  a  bond  fide 
holder,  and  is  protected  against  equities  existing  between  the 
antecedent  parties,  of  which  he  had  no  notice.  The  great  au- 
thority of  Chancellor  Kent,*  who  rendered  the  first  decision  in 
the  case  which  has  led  the  way  in  establishing  this  new  doc- 
trine, has  served  to  obtain  full  recognition  of  it  in  nearly  half 
of  the  states  in  which  the  point  has  arisen  and  been  decided,  not- 
withstanding the  high  authority  of  the  Supreme  Court  of  the 
United  States  has  uniformly  been  against  it.  In  Swift  v.  Tyson  ^ 
that  court  declined  to  follow  the  New  York  rule  in  a  case  arising 
in  that  state,  inasmuch  as  it  related  to  a  matter  of  general  com- 

^  Williams  I'.  Smith,  2  Hill  (N.  Y.),  the    erroneous    doctrine,    having    the 

301.  start  by  a  score  of  years,  had  taken 

2  Lane   v.   Padelford,  14   Me.  94;  root   in   New  York,  and  had    spread 

Kelly  V.  Ferguson,  46  How.   (N.  Y.)  thence  to  other  states. 

Pr.  411.  "There    is,   perhaps,    no   question 

8  5  Johns.  (N.  Y.)  Ch.  54  (1821)  ;  connected    with    the   mercantile    law 

affirmed  20   .Johns.  (N.  Y.)  637;  fol-  which   is   of   more    importance,    and 

lowed  by  Stalker  v.  M'Donald,  6  Hill  upon  which,  at  the  same  time,  there 

(N.  Y.),  93  (1843);  Comstock  u.  Hier,  is  a  more  distressing  conflict  of   au- 

73    N.  Y.  269,   and    numerous   other  thority."     Per  Moncuve,  J.,  in  Davis 

cases  in  that  and  other  states.  v.  Miller,  14  Gratt.  (Va.)  1,  14. 

*  It  is  to  he  noticed  that  Chancellor  ^  16  Peters,  1   (1842);  followed  in 

Kent,  in  his  Commentaries,  vol.  iii.  p.  Bank  of  Metropolis  v.  N.   E.  Bank,  1 

81,  note />,  in  noticing  the  cases  of  Bay  How.  234;  Goodman  v.  Simonds,   20 

r.  Coddington  and  Swift  V.  Tyson,  says  lb.    343;    McCarty    i>.  Roots,    21    lb. 

of  the  latter:  "  I  am  inclined  to  con-  432;  Gates  v.  National  Bank,  100  U. 

cur  in    that    decision,  as    the  plainer  S.  239;  Railroad  Company  «;.  National 

and  better  doctrine."     Unfortunately,  Bank,  102  U.  S.  14. 

74 


COLLATERAL   FOR    A   PRE-EXISTING   DEBT.  [§  108. 

merciul  law,  and  therefore  the  local  law  was  not  binding  upon 
the  Supreme  Court.  Mr.  Justice  Story,  speaking  for  the  court 
upon  the  general  subject  of  the  true  commercial  rule  applicable 
to  the  case,  said :  "  We  have'  no  hesitation  in  saying  that  a  pre- 
existing debt  does  constitute  a  valuable  consideration,  in  the  sense 
of  the  general  rule  already  stated  as  applicable  to  negotiable  in- 
struments. Assuming  it  to  be  true  (which,  however,  may  well 
admit  of  some  doubt  from  the  generality  of  the  language)  that 
the  holder  of  a  negotiable  instrument  is  unaffected  with  the  equi- 
ties between  the  antecedent  parties,  of  which  he  has  no  notice, 
only  where  he  receives  it  in  the  usual  course  of  trade  and  busi- 
ness, for  a  valuable  consideration,  before  it  becomes  due,  we  are 
prepared  to  say  that  receiving  it  in  payment  of,  or  as  security  for, 
a  preexisting  debt  is  according  to  the  known  usual  course  of  trade 
and  business.  And  why,  upon  principle,  should  not  a  pi'eexist- 
ing  debt  be  deemed  such  a  valuable  consideration?  It  is  for  the 
benefit  and  convenience  of  the  commercial  world  to  give  as  wide 
an  extent  as  practicable  to  the  credit  and  circulation  of  nego- 
tiable paper,  that  it  may  pass  not  only  as  security  for  new  pur- 
chases and  advances  made  upon  the  transfer  thereof,  but  also  in 
payment  of,  and  as  security  for,  preexisting  debts.  The  creditor 
is  thereby  enabled  to  realize  or  to  secure  his  debt,  and  thus  may 
safely  give  a  prolonged  credit,  or  forbear  from  taking  any  legal 
steps  to  enforce  his  rights.  The  debtor  also  has  the  advantage  of 
making  his  negotiable  securities  of  equivalent  value  to  cash.  But 
establish  the  opposite  conclusion,  that  negotiable  paper  cannot  be 
applied  in  payment  of,  or  as  security  for,  preexisting  debts,  with- 
out letting  in  all  the  equities  between  the  original  and  antecedent 
parties,  and  the  value  and  circulation  of  such  securities  must  be 
essentially  diminished,  and  the  debtor  driven  to  the  embarrass- 
ment of  making  a  sale  thereof,  often  at  a  ruinous  discount,  to 
some  third  person,  and  then  by  circuity  to  apply  the  proceeds  to 
the  payment  of  his  debts." 

108.  The  courts  of  the  United  States  have  uniformly  held  a 
preexisting  debt  to  be  a  sufficient  consideration  for  a  pledge  of 
collaterals  ;  declining  to  follow  the  decisions  of  state  courts,  which 
have  adopted  the  rule  that  the  holder  of  ncgotiablo  ])aper,  trans- 
ferred merely  as  collateral  security  for  an  antecedent  debt,  is  not  a 
holder  for  value.     It  has  been  urged  that  uii(hM-  the  .Judiciary 

75 


§  109.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

Act,^  the  national  courts  are  obliged  to  follow  the  decisions  of  the 
state  courts  in  all  cases  where  they  apply.  To  this  contention  the 
Supreme  Court  replied,  in  the  case  of  Swift  v.  Tyson,^  that  "  it  has 
never  been  supposed  by  us  that  the  section  did  apply,  or  was  de- 
signed to  apply,  to  questions  of  a  more  general  nature,  not  at  all 
dependent  upon  local  statutes  or  local  usages  of  a  fixed  and  per- 
manent operation,  as,  for  example,  to  the  construction  of  ordinary 
contracts  or  other  written  instruments,  and  especially  to  questions 
of  general  commercial  law,  where  the  state  tribunals  are  called 
upon  to  perform  the  like  functions  as  ourselves ;  that  is,  to  ascer- 
tain upon  general  reasoning  and  legal  analogies  what  is  the  true 
exposition  of  the  contract  or  instrument,  or  what  is  the  just  rule 
furnished  by  the  principles  of  commercial  law  to  govern  the  case. 
And  we  have  not  now  the  slightest  difficulty  in  holding  that  this 
section,  upon  its  true  intendment  and  construction,  is  strictly  lim- 
ited to  local  statutes  and  local  usages  of  the  character  before  stated, 
and  does  not  extend  to  contracts  and  other  instruments  of  a  com- 
mercial nature,  the  true  interpretation  and  effect  whereof  are  to 
be  sought,  not  in  the  decisions  of  the  local  tribunals,  but  in  the 
general  principles  and  doctrines  of  commercial  jurisprudence." 

109.  To  this  doctrine  the  Supreme  Court  has  steadily  ad- 
hered.^ In  a  very  recent  case,  the  parties  to  which  were  citizens 
of  New  York,  where  the  contract  was  also  made,  it  was  again 
claimed  that  the  decisions  of  that  state,  that  negotiable  paper 
transferred  merely  as  collateral  security  for  an  antecedent  debt, 
is  subject  to  the  equities  of  prior  parties  existing  at  the  time  of 
the  transfer,  should  be  followed."*  But  the  court  say  of  its  own 
doctrine :  "  We  perceive  no  reason  for  its  modification  in  any  de- 
gree whatever.  We  could  not  infringe  upon  it,  in  this  case,  with- 
out disturbing  or  endangering  that  stability  which  is  essential  to 
be  maintained  in  the  rules  of  commercial  law.  The  decisions  of 
the  New  York  court  which  we  are  asked  to  follow,  in  determin- 

1  The  thirty-fourth  section  of  this  2  ig  pgt_  ^     ^^d  see,  to  like  effect, 

act  provides,  that   "the  laws  of  the  Carpenter  v.  Providence  Washington 

several  states,  except  where  the  Con-  Ins.  Co.  16  Pet.  495. 

stitution,^  treaties,   or  statutes  of  the  a  Oates  v.  National  Bank,   100  U. 

United  States  otherwise  provide,  shall  S.  239. 

be   regarded  as    rules  of  decision  in  *  Railroad    Co.   v.  National  Bank, 

trials  at  common  law  in  the  courts  of  102  U.  S.  14,  31. 
the  United  States." 

76 


COLLATERAL   FOR   A   PRE-EXISTING  DEBT.  [§  110. 

ing  the  rights  of  parties  under  a  contract  there  made,  are  not  in 
exposition  of  any  legislative  enactment  of  that  state.  They  ex- 
press the  opinion  of  that  court,  not  as  to  the  rights  of  parties 
under  any  law  local  to  that  state,  but  as  to  their  rights  under 
the  general  commercial  law  existing  throughout  the  Union,  ex- 
cept where  it  may  have  been  modified  or  changed  by  some  local 
statute.  It  is  a  law  not  peculiar  to  one  state,  or  dependent  upon 
local  authority,  but  one  arising  out  of  the  usages  of  the  com- 
mercial world.  Suppose  a  state  court,  in  a  case  before  it,  should 
determine  what  were  the  laws  of  war  as  applicable  to  that  and 
similar  cases.  The  federal  courts  sitting  in  that  state  possessing, 
it  must  be  conceded,  equal  power  with  the  state  court  in  the  de- 
termination of  such  questions,  must,  upon  the  theory  of  counsel 
for  the  pUiintiff  in  error,  accept  the  conclusions  of  the  state  court 
as  the  true  interpretation,  for  that  locality,  of  the  laws  of  war, 
and  as  the  '  law  '  of  the  state  in  the  sense  of  the  statute  which 
makes  the  '  laws  of  the  state  rules  of  decision  in  trials  at  com- 
mon law.'  We  apprehend,  however,  that  no  one  would  go  that 
far  in  asserting  the  binding  force  of  state  decisions  upon  the  courts 
of  the  United  States,  when  the  latter  are  required,  in  the  dis- 
charge of  their  judicial  functions,  to  consider  questions  of  general 
law  arising  in  suits  to  which  their  jurisdiction  extends.  To  so 
hold  would  be  to  defeat  one  of  the  objects  for  which  those  courts 
were  established,  and  introduce  infinite  confusion  in  their  decis- 
ions of  such  questions." 

110.  That  an  existing  debt  is  a  valuable  and  suflacient 
consideration  is  the  established  doctrine  in  all  the  federal 
courts.^     "On  a  subject  of   such  general  in)portance,  and  con- 

^  Gates  V.  National  Bank  of  Mont-  son,  as  well  as  that  of  that  learned  ju- 

gomery,    100    U.    S.    239;     Wood    i'.  rist  himself,  and  tliinkinj^  that  the  more 

Seitziriger,   2    Fed.  Rep.   843;    S.   C.  reasonable   and   practieal  rule   which 

14  Am.  Law  Rev.  503,     Jn  a  note  to  puts  on  the  circulation  of  commercial 

this  case  in  the   Review,  Mr.  Biddle  paper  as  little  restraint  as  possible." 

carefully  and  critically  examines  the  National    Bank   of     the    Republic    v. 

cases,  and  in  conclusion  says  :  "  It  is,  Brooklyn  City  &  Newtown   R.  R.  Co. 

perhaps,  not  for  an  annotator  of  a  case  14  lilatchf.  24-J.     Jn  Mack  v.  Baker, 

to  exi)re8s  his  oi)iiiion  as  to  what  the  5  Weekly  Notes  Cas.  212,  Cadwalader, 

better  rule  is,  but  we  cannot  help  feel-  J)i.st.    J,,    followed    the  rennsylvaiiia 

iiijr  the  weight  of  the  practical  reason-  doctrine  to  the  contrary,  but  this  de- 

in;^  of  those  jiid;,'cs  who  have  followed  cision  was  overruled  in   the  same  dis- 

the  dictum  of  iStory,  J.,  in  Swift  v.  Ty-  trict  in  Wood  v.  beitzin-rer,  supra. 

11 


§  111.]  PLEDGES   OF  NEGOTIABLE   PAPER. 

cerning  which  tliere  cannot  properly  be  a  local  rule,  and  in  which 
the  commercial  world  has  a  common  interest,  uniformity  and 
certainty  of  decision  are  greatly  to  be  desired  ;  and  since  the 
highest  tribunals  of  this  country  and  in  England  are  ruling  in 
harmony  upon  the  point,  a  state  court  can  hardly  be  justified  in 
adopting,  if,  indeed,  in  adhering  to,  a  different  rule."  ^ 


111.  The  rule  upon  this  subject  having  the  preponderance 
of  authority  and  resting  upon  the  better  reasons  is,  that  a 
person  to  whom  negotiable  paper  is  indorsed  before  maturity  as 
collateral  security  is  a  bond  fide  holder  for  value,  although  he  re- 
ceive it  as  security  for  an  existing  debt.^     The  English  decisions 


^  Straiigban  v.  Fairchild,  80  Ind. 
598,  per  Woods,  J. 

2  This  is  Ihe  doctrine  in  the  follow- 
ing states: — 

California:  Payne  v.  Bensley,  8 
Cal.  260;  Robinson  v.  Smith,  14  Cal. 
94;  Naglee  v.  Lyman,  14  Cal.  450; 
Sackett  v.  Johnson,  54  Cal.  107;  Da- 
vis V.  Russell,  52  Cal.  611;  Frey  v. 
ClilTbrd,  44  Cal.  335,  342. 

Connecticut:  Brush  v.  Scribner, 
11  Conn.  388;  Savings  Bank  v.  Bates, 
8  Conn.  505,  507  ;  Bridgeport  City 
Bank  v.  Welch,  29  Conn.  475;  Rob- 
erts y.  Hall,  37  Conn.  205;  Osgood 
V.  Thompson  Bank,  30  Conn.  27. 

Delaware  :  Bush  v.  Peckard,  3 
Harr.  385. 

Georgia:  Gibson  v.  Conner,  3  Ga. 
47;  Bond  r.  Central  Bank,  2  Ga.  92, 
lOG;  Meadow  v.  Bird,  22  Ga.  246. 

Illinois  :  Hancock  v.  Hodgson,  3 
Scam.  329  ;  Mayo  v.  Moore,  28  111. 
428;  Manning  v.  McClure,  36  111. 
490 ;  Butters  v.  Haughwout,  42  111. 
18;  Bowman  v.  Millison,  58  111.  36; 
Doolittle  V.  Cook,  75  111.  354,  359; 
Worcester  Nat.  Bank  v.  Cheeney,  87 
111.  602  ;  Mix  v.  National  Bank,  91  111. 
20. 

Indiana :    Straughan    v.  Fairchild, 

80  Ind.  598;  S.  C.  14  Cent.  L.  J.  413; 

Wiley,  in  re,  4   Biss.  171  ;  Valette  v. 

Mason,  Smith,  89;    S.  C.  I  Ind.  288; 

78 


Work  V.  Brayton,  5  Ind.  396;  Rowe 
?'.  Haines,  15  Ind.  ^445;  Babcock  v. 
Jordan,  24  Ind.  14;  McKnight  v. 
Knisely,  25  Ind.  336. 

Louisiana:  Giovanovich  v.  Citi- 
zens' Bank  of  La.  26  La.  Ann.  15; 
Succession  of  Dolhonde,  21  lb.  3  ; 
Louisiana  State  Bank  v.  Gaiennie,  lb. 
555  ;  Smith  v.  Isaacs,  23  lb.  454. 

Maryland :  Maitland  v.  Citizens' 
Nat.  Bank  of  Baltimore,  40  Md.  540; 
Cecil  Bank  v.  Heald,  25  Md.  563. 

Massachusetts  :  Blanchard  v. 
Stevens,  3  Cush.  162;  Chicopee  Bank 
V.  Chapin,  8  Met.  40  ;  Culver  u.  Bene- 
dict, 13  Gray,  7  ;  Stoddard  v.  Kim- 
ball, 6  Cush.  469 ;  Jewett  v.  Warren, 
12  Mass.  300  ;  Merriam  v.  Granite 
Bank,  8  Gray,  254;  Gardner  v,  Gager, 
1  Allen,  502;  Paine  v.  Furnas,  117 
Mass.  290;  Fisher  v.  Fisher,  98  Mass. 
303  ;  Le  Breton  v.  Pierce,  2  Allen,  8  ; 
Woodruff  u.  Hill,  116  Mass.  310. 

Michigan:  Bostwick  v.  Dodge,  1 
Doug.  413  ;  Outhwite  v.  Porter,  13 
Mich.  533. 

Mississippi  :  In  Fellows  v.  Harris, 
12  S.  &  M.  462,  the  court  approved 
the  reasoning  in  Swift  v.  Tyson,  but 
stated  in  the  case  before  them  that 
there  was  a  new  consideration. 

Missouri  :  Boatman's  Sav.  Inst.  v. 
Holland,  38  Mo.  49  ;  Grant  v.  Kid- 
well,  30  lb.  455  ;  but  co)ilra,  see  Good- 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT.  [§  112. 

seem  to  be  unanimous  in  holding  that  current  negotiable  paper, 
taken  as  collateral  security  for  a  prior  debt,  is  taken  for  value, 
and  in  the  usual  course  of  business ;  ^  Lord  Campbell,  in  giving 
the  opinion  in  Poirier  v.  Morris,  said :  "  There  is  nothing  to 
make  a  difference  between  this  and  the  common  case,  where  a 
bill  is  taken  as  security  for  a  debt  due  ;  and  in  that  case  an  an- 
tecedent debt  is  a  sufficient  consideration." 

112.  The  ground  upon  which  one  taking  negotiable  paper 
as  collateral  security  for  a  preexisting  debt  becomes  a 
holder  for  value  may  be  stated  to  be,  that  he  becomes  such 
a  holder  by  the  very  act  of  receiving  of  the  paper,  and  becoming 
a  party  to  it  in  such  a  way  that  the  duty  is  imposed  upon  him 
of  making  presentment  and  giving  notice  of  dishonor.^  Thus, 
where  a  promissory  note  was  pledged  to  a  bank  to  secure  an 
existing  debt,  the  Supreme  Court  of  the  United  States  upon  this 
point,  through  Mr.  Justice  Harlan,  said :  ^  "  The  bank  did  not 
take  the  note  in  suit  as  a  mere  agent  to  receive  the  amount  due 
when  it  suited  tlie  convenience  of  the  debtor  to  make  payment. 
It  received  the  note  under  an  obligation  imposed  by  the  commer- 
cial law  to  present  it  for  payment,  and  give  notice  of  non-pay- 
man  r.  Simonds,  19  Mo.  IOC  ;  Brain-  28  Vt.  209;  Russell  v.  Splater,  47  lb. 
ard  I'.  Reavis,  2  Mo.  App.  490.  273  ;  Quinn  v.  Hard,  43  lb.  375. 

New  Jersey:  Allaire  v.  Harts-  i  Poirier  r.  Morris,  2  El.  &  Bl.  89; 
home,  1  Zab.  665;  Armour  v.  McMi-  -S-  C.  20  L.  &  £([.  103;  Percival  v. 
chael,  36  N.  J.  L.  92.  Frampton,   2  Cronip.  M.  &   R.   180  ; 

North  Carolina  :  Reddick  v.  liosan(iuet  v.  Dudnian,  1  Stark.  1  ; 
Jones,  C)  Ired.  107.  Hey  wood  v.  Watson,  4  Bing.  496;  S. 

Rhode  Island:  Bank  of  Republic  C.  1  M.  &  P.  268;  Price  v.  Price,  16 
V.  Carrington,  5  R.  I.  515,  523;  Cobb  M.  &  W.  232;  Carrie  v.  Misa,  L.  K. 
j;.  Doyle,  7  lb.  550.  10  Ex.  153.      In  Swift  v.  Tyson,   16 

South  Carolina:  I5ank  of  Charles-  P«t.  1,  the  Supreme  Court,  after  re- 
ton  V.  Chambers,  1 1  Rich.  657.  viewing  the  Knglish  cases,  say:  "  They 
Texas  :  In  Greneaux  v.  Wheeler,  directly  establis-h  that  a  bond  fide 
6  Texas,  515,  part  of  the  considera-  holder,  taking  a  negotiable  note  in 
tion  was  an  antecedent  debt,  and  the  payment  of,  or  as  security  for,  a  pre- 
court  saiil  that  the  current  of  author-  existing  debt,  is  a  holder  for  a  val- 
ities  went  to  show  that  a  note  was  uable  consideration,  entitled  to  pro- 
taken  in  the  bond  fide  course  of  trade  tection  against  ail  tiie  ecpiities  between 
■when  transferred  on  such  considera-  the  antecedent  parties." 
lion.  '^  See  Massachusetts,  Rhode  Island, 

Vermont :    Atkinson  v.  Brooks,  ^6     ami  otlier  cases,  before  cited. 
Vt.  569;  Dixon  r.  Dixon,  31  lb.  4.0O;         ^  Railroad    Co.   v.  National    Bank, 
Michigan  Slate  Bank  v.  Leavenworth,     102  U.  S.  11,27. 

79 


§  113.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

ment,  in  the  mode  prescribed  by  the  settled  rules  of  that  law. 
We  lire  of  opinion  that  the  undertaking  of  the  bank  to  fix  the 
liablHty  of  prior  parties  by  due  presentation  for  payment  and 
due  notice  in  case  of  non-payment,  — an  undertaking  necessarily 
implied  by  becoming  a  party  to  the  instrument,  —  was  a  suffi- 
cient consideration  to  protect  it  against  equities  existing  between 
the  other  parties  of  which  it  had  no  notice.  It  assumed  the 
duties  and  responsibilities  of  a  holder  for  value,  and  should  have 
the  rights  and  privileges  pertaining  to  that  position."  Taking 
this  broad  ground,  it  is  not  necessary  to  resort  to  any  express  or 
implied  condition  on  the  part  of  the  creditor  to  suspend  the 
remedy  upon  his  debt. 

113.  It  is  true,  also,  that  forbearance  on  the  part  of  the 
creditor  to  act  is  a  good  consideration.  If  the  creditor  had 
not  taken  the  collateral  note,  he  might  have  pursued  other 
remedies  to  enforce  the  payment  of  the  debt;  or  he  might  have 
obtained  other  security,  or  perhaps  the  money.  It  is  a  fallacy, 
therefore,  to  say  that  if  the  creditor  be  not  allowed  to  enforce 
his  collateral  note,  he  is  nevertheless  in  as  good  a  situation  as  he 
would  have  been  in  if  the  collateral  had  not  been  transferred  to 
him.  "  That  fact  is  assumed,  and  not  proved,  and  from  the 
very  nature  of  the  case  is  a  matter  of  entire  uncertainty.  The 
convenience  and  safety  of  those  dealing  in  negotiable  paper 
seems  to  require  and  justify  the  rule,  that  when  a  person  takes 
a  negotiable  note  not  overdue,  or  apparently  dishonored,  and 
without  notice,  actual  or  constructive,  of  the  want  of  considera- 
tion, or  other  defence  thei'eto,  whether  in  payment  for  a  pre- 
cedent debt,  or  as  collateral  security  for  a  debt,  the  holder 
should  have  the  legal  right  to  enforce  the  same  against  the 
parties  thereto,  notwithstanding  such  defence  might  have  been 
efiectual  as  between  the  original  parties."  ^ 

Tliere  are  cases  which  seem  to  rest  on  the  ground  that  the 
taking  of  a  negotiable  security  payable  at  a  future  day  implies 
an  agreement  by  the  creditor  to  suspend  his  remedies  during 
that  period,  and  that  this  implied  agreement  constitutes  the  true 
consideration  for  the  taking  and  holding  of  the  collateral  paper.2 

1  Blanchard    v.    Stevens,    3    Cush.     Buooks,  26  Vt.  569.     Kedfield,  C.  J., 
(Mass.)  162,  169,  per  Dewey,  J.  said:  "It  seems  to  me,  the  ordinary 

2  See,    for    instance,    Atkinson    v.     case   of    takino-    such   a    security   as 

80 


COLLATERAL   FOR   A    PRE-EXISTING    DEBT.  [§  114. 

But  it  is  conceived  it  is  not  necessary  to  resort  to  this  ground  to 
find  a  suflBcient  consideration  to  support  a  valid  title  in  a  creditor 
who  has  taken  a  bill  or  note  as  security  for  an  existing  debt. 

114.  The  taking  of  negotiable  paper  as  security  for  an  ex- 
isting debt  is  as  much  in  the  usual  course  of  trade  and  busi- 
ness, and  as  much  for  a  valuable  consideration,  as  is  an  absolute 
transfer  of  such  an  instrument  in  payment  of  such  a  debt,  or  in 
payment  or  security  of  a  debt  created  at  the  time.  "  It  certainly 
would  seem  that  payment  of  existing  debts  should  be  in  the  usual 

payment,  or  as  collateral  to  the  prior  defence  that  he  could  have  made 
debt,  is  the  same  in  principle.  One  against  the  payee.  This  is  the  chief 
■whose  debt  is  due,  in  the  commercial  argument  of  those  authorities  wliich 
world,  must  pay  it  instantly,  or  he  decide  against  the  claim  of  the  indor- 
becomes  a  bankrupt.  If,  instead  of  see.  But  is  this  true,  as  a  matter  of 
money,  he  gives  a  bill  or  note,  either  fact?  If  the  indorsee  expressly  give 
on  time  or  at  sight,  whether  this  is  in  further  time  on  his  original  debt,  it  is 
form  in  payment,  or  collateral  to  his  admitted  he  is  to  be  protected.  But 
debt,  he  gains  time,  and  saves  the  it  is  assumed  that,  if  he  does  not  ex- 
disgrace  and  ruin  consequent  upon  pressly  agree  to  give  time,  lie  does 
stopping  payment.  And,  in  either  not  in  fact  give  it,  —  he  does  not  for- 
case,  there  is  an  implied  undertaking  bear  to  use  remedies  that  he  Avould 
that  he  shall  wait  upon  his  debtor  till  have  used  but  for  the  security.  Now, 
the  result  of  the  new  security  can  be  the  question  is  one  of  presumption, 
known;  and  in  both  cases,  when  that  and  that  presumption  must  be  drawn 
proves  unproductive,  the  creditor  may  from  tlie  experience  of  society.  The 
pursue  his  original  debt;  .  .  .  and  it  question  is,  in  the  absence  of  any  ex- 
is  scarcely  supposable  that  one  so  tak-  press  agreement,  what  we  must  pre- 
ing  security  for  a  debt  will  not  con-  sume  to  have  been  the  implied  under- 
duct  differently  on  account  of  the  se-  standing  of  the  parties,  at  the  time  of 
curity.  It  is  of  necessity  he  should,  the  indorsement,  in  regard  to  further 
if  he  puts  any  confidence  in  its  ulti-  forbearance,  to  be  inferred  from  the 
mate  availability.  And  one  would  nature  of  the  transaction,  and  the  ob- 
Bcarcely  part  with  sucli  security,  un-  jects  which  both  parties  had  in  view, 
less  lie  expected  more  or  less  indul-  We  have  no  hesitation  in  saying  that 
gence  on  account  of  it."  These  views  the  assumption  that  time  is  not  in  fact 
were,  however,  criticised  and  rt-jected  given,  because  it  is  not  expressly 
in  the  later  case  of  Austin  v.  Curtis,  31  agreed  to  be  given,  and  that  therefore 
Vt.  C4,  in  a  careful  opinion  by  Bun-  the  indorsee  is  not  placed  in  a  worse 
nett,  J.  In  Manning  v.  McClure,  3G  position  by  letting  in  the  latent  equi- 
111.490-490,  Lawrence,  J.,  said:  "Jt  is  ties  than  he  would  have  occupied  if 
urged  that  in  the  absence  of  such  new  he  had  not  received  the  note,  is  at 
consideration,  or  any  such  agreement,  variance  with  the  general  experience 
the  indorsee  is  in  no  worse  condition  of  all  men  whose  business  makes 
than  he  would  have  been  if  he  had  them  cognizant  of  affairs  of  this  char- 
not  received  the  note,  even  though  acter."  See,  also,  Currie  r.  Misa,  L. 
the  maker  is  permitted  to  set  up  any  11.  10  Ex.  153,  1G3. 
8  81 


§  115.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

course  of  business ;  and  where  it  is  inconvenient  that  debts  shall 
be  paid,  it  ought  not  to  be  out  of  the  usual  course  of  business 
that  such  debts  should  be  secured,  if  security  be  asked.  The  in- 
dorsing over  of  a  note  for  the  purpose  of  paying  a  debt  ought  to 
be  held  as  much  for  valuable  consideration  as  the  transferring  it 
for  a  new  purchase ;  and  the  indorsing  over  of  such  a  note  for 
securing  a  debt  heretofore  contracted,  as  for  one  presently  in- 
curred. .  .  .  On  the  ground  of  importance  for  commercial  pur- 
poses, we  do  not  see  why  negotiable  instruments  should  not  have 
credit  and  currency  for  the  payment  of  and  for  securing  debts,  as 
well  as  for  the  purchasing  of  goods  or  the  raising  of  cash."  ^ 

115.  In  some  American  courts  a  distinction  is  taken  be- 
tween a  note  taken  in  payment  and  one  indorsed  as  security 
for  a  preexisting  debt ;  moreover,  a  distinction  is  taken  between 
paper  taken  in  absolute  payment  of  a  preexisting  debt,  and 
paper  taken  in  nominal  payment  of  such  a  debt.  The  equities 
of  antecedent  parties  do  not  prevail  against  the  holder  in  the 
former  case,  but  they  do  prevail  against  the  holder  in  the  latter 
case.  Generally  when  paper  is  spoken  of  as  received  in  pay- 
ment of  a  debt,  it  is  meant  that  it  is  received  in  conditional  or 
nominal  payment;  for  it  is  regarded  as  so  received  when  there 
is  no  evidence  of  an  intention  to  receive  the  paper  in  absolute 
discharge  and  satisfaction,  beyond  what  may  be  inferred  from 
the  ordinary  transaction  of  accepting  or  receipting  it  in  payment, 
or  crediting  it  on  account.  The  payment  under  such  circum- 
stances is  regarded  as  conditional  only,  and  the  right  of  the 
creditor  to  proceed  upon  the  original  indebtedness  after  the  ma- 
turity of  the  paper  is  unimpaired.^  But  the  surrender  by  a 
creditor  of  the  past  due  notes  of  a  debtor  upon  receiving  from 
him,  in  good  faith,  before  maturity,  the  note  of  a  third  person, 

1  Bank  v.  Carrington,  5  R.  I.  515,  case  of  an  antecedent  indebtedness,  is 
per  Bosworth,  J.  To  same  effect,  see  not  a  payment  of  the  indebtedness. 
Roberts  v.  Hall,  37  Conn.  213,  per  In  the  absence  of  a  special  agreement, 
Carpenter,  J.  it  must  be  considered  as  a  conditional 

2  Phoenix  Ins.  Co.  v.  Church,  81  N.  payment  or  as  collateral  security. 
Y.  218;  Potts  y.  Mayer,  74  N.Y.  594;  The  debtor  continues  liable  for  his 
Hunter  v.  Moul,  98  Pa.  St.  13.  Mer-  own  debt  in  the  event  of  a  failure  of 
cur,  J.,  in  this  case  said :  "  The  mere  payment  of  the  note  thus  given  or 
acceptance,  from  a  debtor,  of  his  own  transferred."  Citing  several  Penn- 
note,  or  the  note  of  a  third  person,  in  sylvania  cases. 

82 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT.  [§  115. 

in  place  of  the  note  surrendered,  constitutes  the  creditor  a  holder 
for  value  of  the  note  thus  taken,  and  protects  him  against  the 
defences  and  equities  of  the  antecedent  parties ;  and  it  is  im- 
material whether  the  note  surrendered  was  given  to  the  creditor 
for  goods  sold,  or  money  loaned,  or  under  circumstances  which 
would  leave  the  original  debt,  represented  by  the  note  in  exist- 
ence, enforcible  against  the  debtor,  or  whether,  by  surrendering 
the  note,  the  creditor  parted  with  his  entire  right  of  action.^ 
It  may  indeed  be  considered  as  settled,  except  in  New  York,^ 


1  Such  is  the  result  of  the  Kew 
York  cases,  as  stated  by  Andrews,  J., 
in  Phoenix  Ins.  Co  v.  Church,  81  N.  Y. 
218,  225,  after  a  review  of  a  long  line 
of  authorities. 

2  Turner  v.  Tread  way,  53  X.  Y. 
650;  Lawrence  r.  Clark,  36  lb.  128; 
Weaver  v.  liarden,  4D  lb.  286,  per 
Allen,  J.;  Fis-her  v.  Sharpe,  5  Daly, 
214 ;  Ayres  v.  Leypoldt,  6  lb.  91 
Buhrman  v.  Bay  lis,  14  Hun,  608 
Rosa  V.  Brotherson,  10  Wend.  85 
Payne  r.  Cutler,  13  lb.  605;  Stalker 
I'.  M'Donald,  6  Hill,  93;  White  v. 
Springfield  Bank,  1  Barb.  225;  S.  C. 
3  Sandf.  222.  But  one  receiving  a 
note  indorsed  without  recourse,  in  pay- 
ment of  a  precedent  debt  which  is  at 
the  same  time  discharged,  is  a  botid 
Ji'Je  holder  for  value,  not  subject  to 
any  equities  between  the  original  par- 
ties. Bank  of  St.  Albans  v.  Gilliland, 
23  W'end.  311;  Bank  of  Sandusky  v. 
Scoville,  24  lb.  115;  Mohawk  Bank 
V.  Corey,  1  Hill,  513  ;  Youngs  v.  Lee, 
12  N.  Y.  551;  Brown  v.  Leavitt,  31 
lb.  113;  Chrysler  v.  Griswold,  43  lb. 
209;  Gould  v.  Segee,  5  Duer,  260; 
Purchase  v.  Matlison,  6  lb.  587;  S. 
C.  3  Bosw.  310;  White  i'.  Springfield 
Bank,  3  Sandf.  222 ;  Stettheimer  v. 
Meyer,  33  Barb.  215.  See,  also, 
llo)t  V.  lloyt,  8  Bosw.  511  ;  Paddon 
V.  Taylor,  44  N.  Y.  371  ;  Pratt  v. 
Coiiian,  37  N.  Y.  440  ;  Brown  v. 
Leavitt,  31  N.  Y.  113  ;  Bigelow  Bills 
ami  Notes,  499,  where  the  result  of 
the  New  York   cases  on  this  point  is 


fully  stated.  And  so  one  taking  a 
note  in  exchange  for  a  note  not  then 
due,  which  is  thereupon  surrendered, 
is  a  holder  for  value.  Youngs  v, 
Lee,  12  X.  Y.  551.  But  the  old  note 
must  be  surrendered  absolutely  be- 
fore maturity.  Bright  v.  Judson,  47 
Barb.  29.  Later  cases  establish  the 
doctrine  that  it  is  immaterial  whether 
the  surrendered  note  be  past  due  or 
not.  Phoenix  Ins.  Co.  v.  Church,  81 
N.  Y.  218;  Pratt  v.  Coman,  37  N.  Y. 
440  ;  Clothier  v.  Adriance  51  N.  Y. 
322;  Paddon  v.  Taylor,  44  N.  Y.  371; 
Brown  V.  Leavitt,  31  X.  Y.  113;  Day 
V.  Saunders,  1  Abb.  App.  Dec.  495. 

But  this  distinction  is  not  a  sound 
one.  On  the  contrary,  when  paper  is 
taken  in  conditional  payment  of  an 
existing  debt,  if  an  agreement  be  not 
necessarily  implied  to  forbear  the  col- 
lection of  the  existing  debt  until  the 
maturity  of  the  new  paper,  the  con- 
dition that  the  debt  shall  revive  if 
the  new  paper  be  not  paid  amounts 
to  the  same  thing. 

Upon  this  point  see  Carrie  v.  Misa, 
L.  It.  10  Ex.  153,  163,  where  the 
title  of  a  creditor  who  had  taken  a 
check  on  account  of  an  existing  debt 
was  held  to  be  indefeasible,  on  the 
ground  that  it  was  a  conditional  pay- 
ment. JyUhh,  .L,  said:  "  Tiie  title  of 
a  creditor  to  a  bill  given  on  account  of 
a  preexisting  debt,  ami  payal)le  at  a 
future  day,  does  not  rest  upon  the  im- 
plied agreement  to  suspend  his  reme- 
dies.    The  true  reason  is  that  given 

83 


§  115.] 


PLEDGES   OF   NEGOTIABLE   PAPER, 


that,  when  a  negotiable  instrument  is  taken  in  payment  of  a  pre- 
existing debt,  it  is  held  discharged  of  equities  existing  between 
prior  parties  ;  ^  yet  some  of  the  courts  so  holding  also  hold  that 
a  creditor  to  whom  such  paper  is  indorsed  as  security  for  a  pre- 
existing debt  takes  it  subject  to  the  equities  between  the  antece- 
dent parties.^ 

by    the   Court   of   Common  Pleas   in  rights  of  a  holder  for  value.    Iowa  Col- 

Belshaw  v.  Bush,  11   C.  B,  191,  as  the  lege  v.  Hill,  12  Iowa,  462  ;  Ruddick  v. 

foundation   of   the   judgment   in  that  Lloyd,  15  lb.  441.     So  in  Kentucky: 

case;    namely,  that   a  negotiable   se-  Alexander  y.  Springfield  Bank,  2  Mete, 

curity  given  for  such  a  purpose  is  a  535;  Lee  ;;.  Smead,   1  lb.  628,   634; 

conditional  payment  of  the  debt,  the  May  v.  Quimby,  3  Bush,  96  ;  Greenwell 

condition  being  that  the  debt  revives  v.  Haydon,  78  Ky.  332;  and  Pennsyl- 

if  the  security  is  not  realized.     This  vania  :  Bardsley  v.  Delp,  88  Pa.  St. 

is  precisely  the  effect  which  both  par-  420;    Dovey's   App.   97   Pa.   St.  153; 

ties   intended   the   security  to   have;  Muirhead  v.  Kirkpatrick,  21  lb.  237; 

and  the    doctrine  is  as  applicable  to  Kirkpatrick  v.  Muirhead,  16  lb.  117, 

one  species  of  negotiable  security  as  123;  Bell,  J.,  in  the  latter  case,  say- 


to  another,  —  to  a  check  payable  on 
demand,  as  to  a  running  bill  or  prom- 
issory note  payable  to  order  or  bearer, 
whether  it  be  the  note  of  a  country 
bank  which  circulates  as  money,  or 
the  note  of  the  debtor,  or  of  any  other 
person.  The  security  is  offered  to 
the  creditor,  and  taken  by  him  as 
money's  worth,  and  justice  requires 
that  it  should  be  as  truly  his  property 
as  the  money  which  it  represents 
would  have  been  his  had  the  payment 
been  made  in  gold  or  a  Bank  of  Eng- 
land note.  And,  on  the  other  hand, 
until  it  has  proved  unproductive,  the 
creditor  ought  not  to  be  allowed  to 
treat  it  as  a  nullity,  and  to  sue  the 
debtor  as  if  he  had  no  security." 

^  Bank  of  the  Republic  v.  Carring- 
ton,  5  R.  L  515,  per  Bosworth,  J.; 
Conkling  v.  Vail,  31  111.  166;  Foy  v. 
Blackstone,  31  111.  538;  Draper  v. 
Cowles,  27  Kans.  484. 

2  Thus,  in  Iowa,  it  is  held  that 
a  note  transferred  in  satisfaction  of 
a  preexisting  debt  is  transferred  for 
a  valuable  consideration  ;  Johnson  v. 
Barney,  1  Iowa,  531  ;  while  one  trans- 
ferred as  collateral  security  for  such  a 
debt  does  not  give  the  indorsee  the 

84 


ing,  "Whatever  contrariety  of  opin- 
ion may  have  existed  elsewhere  on 
this  subject,  it  is  the  undoubted  law 
of  Pennsylvania  that  though  the 
holder  of  a  negotiable  instrument 
received  in  jMyment  of  a  preexist- 
ing debt,  before  maturity,  cannot  be 
subjected  to  equities  which  might 
have  furnished  a  defence  as  between 
the  original  parties,  and  of  which  he 
had  no  notice,  yet,  if  the  paper  be 
taken  as  collateral  security  merely,  for 
the  payment  of  a  debt,  or  for  protec- 
tion against  previously  assumed  lia- 
biliiies,  the  defendant  may  aver  any 
ground  of  defence  which  would  have 
been  competent  between  antecedent 
parties  to  the  bill  or  note;  unless,  in- 
deed, there  was  some  new  and  dis- 
tinct consideration  moving  between 
the  parties  to  the  transfer,  —  such  as 
giving  up  some  other  aVfiilable  se- 
curity, releasing  another  party,  drawer 
or  indorser,  conceding  further  time 
for  payment,  and  the  like."  And  see 
Struthers  v.  Kendall,  41  Pa.  St.  214. 
So  in  Maine:  Korton  v.  Waite,  20 
Me.  175;  Homes  t'.  Smyth,  16  lb.  177; 
New  Hampshire :  Williams  v.  Little, 
11  N.   H.  66  ;  Wisconsin:  Heath  r. 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT.  [§§  116,  117. 

116.  This  distinction  seems  shadowy  and  pernipious. 
"•  The  indorsing  over  of  a  note  for  the  purpose  of  paying  a  debt 
ought  to  be  held  as  much  for  vahiable  consideration  as  the  trans- 
ferring  it  for  a  new  purchase  ;  and  the  indorsing  over  of  such  a 
note  for  securing  a  debt  heretofore  contracted  as  for  one  pres- 
ently incurred.  It  is  held  by  the  courts,  with  scarcely  any  ex- 
ception, that  the  transferring  of  a  note  to  secure  payment  for  a 
present  purchase  is  in  the  usual  course  of  business.  And  why  is 
it  not  so  when  transferred  to  secure  a  debt  due,  and  which  ought 
to  be  paid  or  secured  before  new  liabilities  are  contracted  ?  On 
the  ground  of  importance  for  commercial  purposes,  we  do  not 
see  why  negotiable  instruments  should  not  have  credit  and  cur- 
rency for  the  payment  of,  and  for  securing  debts,  as  well  as  for 
the  purchasing  of  goods  or  the  raising  of  cash.  It  is  often  quite 
as  important  to  business  men  in  commercial  transactions  that 
they  should  be  able  to  pay  or  secure  their  debts,  and  make  use  of 
current  paper  for  these  purposes,  as  it  is  that  they  should  make 
new  purchases,  or  sell  such  paper  sometimes  at  ruinous  sacri- 
fices, for  the  purpose  of  raising  money  with  which  to  pay  their 
debts."  1 

There  is,  in  fact,  no  difference  in  principle  between  a  note 
indorsed  in  payment  and  one  indorsed  for  the  security  of  a  pre- 
existing debt ;  and  the  courts  generally  place  them  upon  the 
same  footing. ^ 

117.  The  doctrine  that  an  assignee  of  negotiable  paper  as 
collateral  security  for  a  preexisting  debt  is  not  a  holder  for 
value,^  stated   at  length,  is  as  follows:  The  assignee  of  nego- 

Silverthorn  Lead  Mining  and  Smelt-  on  this  point  are  wholly  unsustainable. 

ing  Co.  39  Wis.  14G  ;   Bange  v.  Flint,  The  payment  of   a  debt,  it  is  to  be 

25  lb.  544  ;   De  Witt  v.   Perkins,   22  hoped,  has  not  yet  become  an  act  '  out 

lb.  473;    Stevens  v.  Campbell,  13  lb.  of  the  ordinary  course  of  business.'  " 

375  ;  Cook  v.  Helms  5  lb.  107  ;  Knox  And  see  Carlisle  v.  Wishart,  11  Ohio, 

V.  Cliflrord,   38   lb.    651;   Atchison  i'.  172. 

Davidson,  2  Pinney,  48 ;  Shufehlt  v.  ^  See  cases  supra,  and  Meadow  v. 
Pease;  IG  Wis.  659  ;  and  Alabama  :  Bird,  22  Ga.  24C,  254  ;  Gibson  v.  Con- 
Mayberry  v.  Morris,  62  Ala.  113.  ner,  3  lb.  47;  Butters  v.  Ilaughwout, 
1  Bank  of  the  Republic  v.  Carring-  42  111.  18;  Giovanovich  v.  Citizens' 
ton,  5  It.  I.  515,  521,  per  Hosworth,  J.  Bank  of  La.  26  La.  Ann.  15;  Atkinson 
In  Riley  v.  Anderson,  2  McLean,  589,  v.  Brooks,  26  Vt.  569,  576,  per  Red- 
Judge  McLean  said  :  "  On  principle  Geld,  C.  J. 
and  authority,  the  New  York  decisions  '  This  doctrine  prevails  in  —  _ 

«;3 


§  117.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

liable  paper,  receiving  it  in  good  faith  from  the  payee,  without 
notice,  and  before  maturity,  as  collateral  security  for  a  preexist- 


Alabama  :  Fenouille  v.  Hamilton, 
35  Ala.  319,  322;  Boyd  v.  Beck,  29 
lb.  703  ;  McKenzie  v.  Branch  Bank, 
28  lb.  606  ;  Connerly  v.  Planters'  & 
Mercliants'  Ins.  Co.  66  Ala.  432. 

Arkansas  :  Bertrand  v.  Barkman, 
13  Ark.  150. 

lovira:  Iowa  College  v.  Hill,  12 
Iowa,  462;  Ruddick  v.  Lloyd,  15  lb. 
441;  Davis  v.  Strobm,  17  lb.  421; 
Ryanr.  Chew,  13  lb.  589. 

Kentucky:  Lee  v.  Smead,  1  Mete. 
628;  Alexanders.  Springfield  Bank,  2 
Mete.  534 ;  May  v.  Quimby,  3  Bush,  96 ; 
Breckinridge  v.  Moore,  3  B.  Mon.  629. 

Maine :  Branihall  v.  Beckett,  31 
Me.  205  ;  Nutter  i'.  Stover,  48  lb.  163. 

Minnesota  :  Becker  v.  Sandusky 
City  Bank,  1  Minn.  311,  319. 

Mississippi:  Brooks  v.  Whitson, 
7  S.  &  M.  513. 

New  Hampshire  :  Williams  v. 
Little,  11  N.  H.  66  ;  Jenness  v.  Bean, 
10  lb.  266;  Fletcher  v.  Chase,  16  lb. 
38;  Rice  v.  Raitt,  17  lb.  116. 

New  York  :  Coddington  v.  Bay, 
20  Johns.  637  ;  S.  C.  5  Johns.  Ch.  54  ; 
Francia  v.  Joseph,  3  Edw.  Ch.  182; 
Stalker  v.  M'Donald,  6  Hill,  93; 
Warden  v.  Howell,  9  Wend.  170; 
Lawrence  v.  Clark,  36  N.  Y.  128; 
Weaver  v.  Barden,  49  lb.  286,  294, 
per  Allen,  J.;  Beers  v.  Culver,  1  Hill, 
58^;  Scott  f.  Betts,  Hill  &  Den.  363; 
Stewart  v.  Small,  2  Barb.  559 ;  Far- 
rington  v.  Frankfort  Bank,  24  lb.  554  ; 
S.  C.  31  lb.  183;  Prentiss  v.  Graves, 
33  lb.  621  ;  Am.  Exch.  Bank  v.  Cor- 
liss, 46  lb.  19  ;  Furniss  v.  Gilchrist,  1 
Sandf.  53;  Skilding  v.  Warren,  15 
Johns.  270;  Small  v.  Smith,  1  Denio, 
583  ;  Turner  v.  Treadway,  53  N.  Y. 
650;  Moore  v.  Ryder,  65  lb.  438; 
Comstock  V.  Hier,  73  lb.  269. 

North  Carolina  :  In  Reddick  v. 
Jones,  6  Ired.  10  7,  Ruffin,  C.  J.,  who 
delivered  the   opinion   of   the   court, 

86 


was  somewhat  doubtful  as  to  what  the 
rule  should  be,  but  intimated  that  the 
holder  of  a  note  as  collateral  was  not 
a  bondjide  holder  for  value. 

Ohio :  Roxborough  v.  Messick,  6 
Ohio  St.  448;  recognized  in  Rezner 
V.  Hatch,  7  Ohio  St.  248,  255;  Geb- 
hart  V.  Sorrels,  9  Ohio  St.  461,  466; 
Cleveland  v.  State  Bank,  16  Ohio  St. 
236,  269;  Copeland  v.  Manton,  22 
Ohio  St.  398,  402  ;  Pitts  v.  Foglesong, 
37  Ohio  St.  676,  680;  S.  C.  41  Am. 
Rep.  540. 

Pennsylvania  :  Ashton's  Appeal, 
73  Pa.  St.  153  ;  Royer  v.  Keystone 
Nat.  Bank,  83  lb.  248;  Depeau  v. 
Waddington,  6  Whart.  220;  Cum- 
mings  V.  Boyd,  83  Pa.  St.  372  ;  Kirk- 
patrick  v.  Muirhead,  16  lb.  117,  123  ; 
Lord  V.  Ocean  Bank,  20  lb.  384;  Sit- 
greaves  v.  Farmers'  &  Mechanics' 
Bank,  49  lb.  359 ;  Lenheim  v.  Wil- 
marding,  55  lb.  73  ;  Pratt's  Appeal, 
77  lb.  378;  Petrie  v.  Clark,  11  S.  &  R. 
377;  Oakford  v.  Johnson,  2  Miles,  203; 
Jackson  v.  Polack,  lb.  362;  Maynard 
V.  Sixth  Nat.  Bank,  98  Pa.  St.  250. 

Tennessee  :  Wormley  v.  Lowry,  1 
Humph.  468;  Kimbro  v.  Lytle,  10 
Yerg.  417;  Nichol  v.  Bate,  lb.  429; 
Napier  v.  Elam,  6  lb.  108;  King  v. 
Doolittle,  1  Head,  77. 

Virginia  :  Prentice  i\  Zane,  2 
Gratt.  262.  This  case  is  referred  to  in 
the  later  case  of  Davis  v.  Miller,  14 
Gratt.  1,  15,  as  the  only  case  in  that 
state  bearing  upon  this  subject,  and 
seems  to  have  been  based  upon  the 
supposed  correctness  of  the  New  York 
rule.  "  The  note  in  that  case  was  made 
in  Philadelphia;  and  the  decision  con- 
formed to  the  well  settled  law  of  the 
place  of  the  contract.  AVhether  the 
case  would  have  been  decided  in  the 
same  way  if  the  note  had  been  a 
Virginia  contract  is  uncertain.  The 
question  may  therefore  be  considered 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT.  [§  118. 

ing  debt,  in  the  absence  of  any  new  consideration,  stipulation  for 
delay  or  credit  given,  or  right  parted  with  by  the  creditor,  is  not 
a  holder  of  the  collateral  paper  for  value,  in  the  usual  course  of 
trade,  but  takes  it  subject  to  all  the  equities  which  may  exist 
against  the  payee  in  favor  of  the  maker  at  the  time  of  the  assign- 
ment.^ This  doctrine  has  no  application  when  any  new  consid- 
eration enters  into  the  transaction ;  such,  for  instance,  as  an 
additional  loan  or  advancement  made  at  the  time,  a  new  respon- 
siblity  incurred,  or  a  stipulation  for  delay  or  credit,  or  a  change 
of  securities.  In  all  such  or  similar  cases  the  holder  of  the  col- 
lateral security  is  protected  from  infirmities  affecting  the  instru- 
ment before  it  was  thus  transferred.^ 

118.  This  doctrine  rests  upon  two  objections  :  1.  That  a 
creditor  who  has  paid  no  new  consideration  for  his  collateral  note 
is  not  injured  by  an  impeachment  of  his  title  to  it.  2.  That  the 
collateral  note  is  not  one  made  in  the  usual  course  of  business. 

Both  of  these  objections  have  been  repeatedly  and  conclusively 
answered.  They  were  answered  by  Mr.  Justice  Story  in  Swift 
V.  Tyson,^  one  of  the  earliest  of  the  American  cases  upon  this 
subject ;  and  they  were  answered  again  in  the  latest  case  involv- 
ing this  subject  in  the  same  court  ;*  and  these  answers  cannot 
be  better  stated  than  in  the  authoritative  language  of  the  judges 
•who  delivered  the  opinions  in  those  cases.  1.  "  Transfers  of 
negotiable  securities  for  the  purpose  supposed  are  seldom  made, 
except  in  the  execution  of  some  agreement  or  understanding  by 
which  the  transferrer  is  to  be  benefited,  as  by  delay  or  forbear- 
ance or  further  credit,  or  the  giving  up  of  other  collaterals,  or 
the  substitution  of  one  collateral  for  anothei',  or  the  promise  to 
forego  the  means  of  obtaining  other  indemnity  or  security.  Few 
cases,  it  is  presumed,  arise  where  the  interest  of  the  debtor  is  not 
consulted ;  so  that,  if  the  rule  should  be  confined  to  the  cases 

as  still  unsettled  in  this  state."     Per  ^  Ruddick  v.  Lloyd,  15  Iowa,  441; 

Moncure,  J.  Stotts  v.   Byers,  17  lb.   303;   Nelson 

"Wisconsin:  Bowman  r.  Van  Ku-  v.  Edwards,   40  Barb.    (N.  Y.)   279; 

ren,  2a  Wis.  209;  Body  y.  Jcwsen,  33  Traders'    Bank   v.    Bradner,    43    lb. 

lb.  402  ;  Jenkins  v.  Schaub,  14  lb.  1  ;  379;  Cherry  v.  Frost,  7  Lea  (Tenn.), 

Cook  V.  Helms,  .5  lb.  107.  1. 

1  Ruddick  v.  Lloyd,  15  Iowa,  441;  »  IG  Pet.  1. 

Iowa  College  r.  Hill,  12  lb.  4G2  ;  Rox-  ■•  Railroad   Co.   v.  National   Bank, 

borough  V.  Messick,  G  Ohio  St.  448.  102  U.  S.  14,  51. 

87 


§  110.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

falling  within  the  abstract  theory  of  such  a  defence,  the  question 
would  cease  to  be  of  much  importance  ;  nor  would  it  often  be  true 
that,  if  the  title  of  the  holder  should  be  impeached,  he  would  be 
left  in  as  ffood  condition  as  he  was  before."  ^  2.  As  to  the  ob- 
jection  that  a  transfer  of  negotiable  paper  as  collateral  security 
for  an  existing  debt  is  not  a  transaction  in  the  ordinary  course 
of  business,  Mr.  Justice  Harlan,  delivering  the  opinion  of  the 
court,  said:^  "  This  objection  is  not  sustained  by  the  recognized 
usages  of  the  commercial  world,  nor,  as  we  think,  by  sound  reason. 
The  transfer  of  negotiable  paper  as  security  for  antecedent  debts 
constitutes  a  material  and  an  increasing  portion  of  the  commerce 
of  the  country.  Such  transactions  have  become  very  common  in 
financial  circles.  They  have  grown  out  of  the  necessities  of  busi- 
ness, and,  in  these  days  of  great  commercial  activity,  they  con- 
tribute largely  to  the  benefit  and  convenience  both  of  debtors 
and  creditors." 

119.  In  the  exceptional  case  where  no  agreement  for  time 
can  be  implied  from  the  taking  of  a  collateral  note,  we  have 
already  seen  that  the  Supreme  Court  find  a  sufficient  considera- 
tion to  uphold  the  pledge  in  the  duties  and  undertakings  on  the 
part  of  the  pledgee  in  becoming  a  party  to  the  note.^  Mr.  Justice 
Bradley,  however,  declared  that  he  did  not  regard  the  obligation 
assumed  by  the  pledgee  to  present  the  note  for  payment,  and 
give  notice  of  non-payment,  as  the  only,  or  the  principal,  con- 
sideration of  such  transfer :  "  The  true  consideration  was  the 
debt  due  from  the  indorsers  to  the  indorsee,  and  the  obligation 
to  pay  or  secure  said  debt.  Had  any  other  collateral  security 
been  given,  as  a  mortgage,  or  a  pledge  of  property,  it  would  have 
been  equally  sustained  by  the  consideration  referred  to  ;  namely, 
the  debt  and  the  obligation  to  pay  it  or  secure  its  payment.  ... 
But  the  bond  fide  transfer  of  commercial  paper  before  maturity 
does  cut  off  such  equities  ;  and  every  collateral  is  held  by  the 
creditor  of  such  title  and  in  such  manner  as  appertain  to  its 
nature  and  qualities.  Security  for  the  payment  of  a  debt  actu- 
ally owing  is  a  good  consideration,  and  sufficient  to  support  a 

1  Per  Clifford,  J.,  in  Railroad  Co.  v.  »  Railroad  Co.  v.  National  Bank, 
National  Bank,  102  U.  S.  14.  102  U.  S.  14,  58. 

2  Railroad    Co.  v.  National   Bank, 
supra. 

88 


COLLATERAL   FOR    A    PRE-EXISTING   DEBT.  [§  120. 

transfer  of  property.  "When  such  transfer  is  made  for  such  pur- 
pose, it  has  due  effect  as  a  complete  transfer,  according  to  the 
nature  and  incidents  of  the  property  transferred.  When  it  is  a 
promissory  note  or  bill  of  exchange,  it  has  the  effect  of  givino- 
absolute  title  and  of  cutting  off  prior  equities,  provided  the 
ordinary  conditions  exist  to  give  it  that  effect.  If  not  trans- 
ferred before  maturity,  or  in  due  course  of  business,  then,  of 
course,  it  cannot  have  such  effect.  But  I  think  it  is  well  shown 
in  the  principal  opinion  that  a  transfer  for  the  purpose  of  secur- 
ing a  debt  is  a  transfer  in  due  course.  And  that  really  ends  the 
argument  on  the  subject." 

120.  In  conclusion,  it  is  to  be  observed  that  the  innovation 
in  commercial  law  made  by  the  decision  in  Bay  v.  Coddington, 
and  followed  to  the  present  time  by  the  courts  of  several  states, 
seems  unlikely  to  obtain  general  recognition  as  a  rule  founded  in 
sound  reason  and  good  pohcy.  It  has  found  no  recognition  in 
England.  Mr.  Justice  Clifford,  of  the  Supreme  Court,  in  a 
recent  case,^  referring  to  Bay  v.  Coddington  and  other  cases  in 
New  York,  which  have  followed  the  rule  of  law  there  announced, 
said  :  "  Sixty  years  have  elapsed  since  the  commercial  rule 
adopted  and  enforced  by  that  series  of  decisions  was  first  pro- 
mulgated, and  yet  it  does  not  and  never  has  commanded  the 
slightest  countenance  from  any  court  sitting  in  Westminster  Hall. 
Earnest  differences  of  opinion  existed  in  that  country  among 
judicial  men,  in  respect  to  the  extent  of  the  protection  which  the 
commercial  law  afforded  to  a  bond  fide  holder  of  a  negotiable 
security  against  the  equities  between  the  antecedent  parties,  but 
there  is  no  authentic  evidence  that  any  substantial  diversity  of 
opinion  ever  arose  in  the  courts  of  that  country  touching  the 
question  under  consideration."  The  Supreme  Court,  by  its 
recent  decisions,  has  conclusively  affirmed  its  former  doctrine 
upon  this  subject,  and  has  made  this  the  settled  rule  of  law  to 
be  followed  by  all  federal  courts,  regardless  of  the  local  doctrine 
to  the  contrary  which  may  prevail  in  any  state  where  a  federal 
court  may  be  sitting.  It  is  unlikely  that  the  courts  of  any  state 
notahvady  committed  to  the  doctrine  of  Bay  v.  Coddington  will 
hereafter  adopt  it,  in  opposition  to  the  established  doctrine  of 
the  federal  courts,  followed  also  by  the  greater  number  of  the 
1  Railroad  Co.  t;.  National  Bank,  102  U.  S.  14,  44. 

89 


§§  121,  122.]  PLEDGES   OF  NEGOTIABLE  PAPER. 

state  courts.     The  federal  courts  will,  in  fact,  sooner  or  later, 
compel  the  general  adoption  of  the  doctrine  by  those  courts. 

121.  Uniformity  of  rule  upon  this  subject  is  so  important 
in  the  every-day  business  of  the  people,  that  the  existence  of  a 
conflicting  rule  is  an  evil  which  will  some  day  become  too  great 
to  be  longer  tolerated ;  and  uniformity  will  be  reached  by  legisla- 
tion, or  by  adoption  of  the  prevailing  doctrine  by  the  courts. 
In  a  recent  decision  by  the  Supreme  Court  of  Indiana  it  was 
wisely  said  :  ^  "If  this  court  were  not,  as  it  seems  to  be,  already 
committed  to  the  doctrine  held  by  the  Supreme  Court  of  the 
United  States,  we  should  be  much  inclined,  if  not  constrained,  to 
follow  it.  On  a  subject  of  such  general  importance,  and  con- 
cerning which  there  cannot  properly  be  a  local  rule,  and  in  which 
the  commercial  world  has  a  common  interest,  uniformity  and 
certainty  of  decision  are  greatly  to  be  desired  ;  and  since  the 
highest  tribunals  in  this  country  and  in  England  are  ruling  in 
harmony  upon  the  point,  a  state  court  can  hardly  be  justified  in 
adopting,  if,  indeed,  in  adhering  to  a  different  rule." 

122.  Exception  as  to  accommodation  paper.  —  The  doc- 
trine that  a  preexisting  debt  is  not  a  valuable  consideration  for 
a  pledge  of  a  promissory  note  is  applie<,l  by  some  of  the  courts 
which  adopt  it  to  accommodation  paper,  holding  that,  in  a  suit 
by  an  indorsee  of  such  paper  for  a  precedent  debt,  the  maker  may 
successfully  interpose  the  defence  that  it  was  originally  given 
without  value.2  But  the  weight  of  authority  among  the  courts 
which  adopt  this  general  doctrine  is,  that  the  holder  of  an  ac- 
commodation note,  made  without  restriction  as  to  its  use,  and 
taken  in  good  faith  as  collateral  security  for  an  antecedent  debt, 
and  without  other  consideration,  is  entitled  to  the  position  of  a 
holder  for  value,  and  is  not  affected  by  the  defence  of  want  of 
consideration  to  the  maker.^     It  is  only  where  the  note  has  been 

1  Straughan  f.  Fairchild  (Ind.  Apr.  104  ;  East  River  Bank  v.  Butterworth, 
1882),  14  Cunt.  L.  J.  413.  45  lb.  476;  S.   C.  30  How.  Pr.  444; 

2  Braiuball  v.  Beckett,  31  Me.  205;  51  N.  Y.  G37;  Grandin  v.  Le  Roy,  2 
Connerly  v.  Planters'  &  Merchants'  Paige,  509  ;  Bank  of  Rutland  v.  Buck, 
Ins.  Co.  66  Ala.  432.  5   Wend.    66  ;   AVhite  v.    Springfield 

8  New  York:  Grocers'  Bank  v.  Bank.  3  Sandf.  222;  Lathrop  v.  Mor- 
Penfield,  7  Hun,  279;  aff'd.  69  N.  Y.  ris,  5  lb.  7  ;  De  Zeng  v.  Fyfe,  1  Bosw. 
502;    Cole   v.    Saulpaugh,    48    Barb.     335;    Robbins   v.   Richardson,    2    lb. 

90 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT. 


[§  123. 


diverted  from  the  purpose  for  which  it  was  intrusted  to  the 
pa^-ee,  or  some  other  equity  exists  in  favor  of  the  maker,  that  it 
is  necessary  that  the  holder  should  have  parted  with  value  on  the 
faith  of  the  note,  in  order  to  cut  off  such  equity  of  the  maker.^ 
Moreover,  when  the  holder  of  such  a  note  has  parted  with  a  val- 
uable consideration  for  it,  the  mere  fact  that  it  has  been  fraudu- 
lently diverted  from  the  purpose  for  which  it  was  made  is  no 
defence  to  his  action  upon  it ;  to  make  such  defence  available,  it 
must  be  shown  that  the  holder  had  notice  of  the  restriction  im- 
posed in  regard  to  the  use  of  the  note.^ 


123.  It  does  not  matter  that  the  person  who  takes  nego- 
tiable paper  as  collateral  security  has  notice  that  it  was 
made  for  the  debtor's  accommodation.  Upon  this  point  the 
Supren)e  Court  of  Illinois  in  a  recent  case  said  :  "  Accommoda- 
tion paper  is  made  for  the  express  purpose  that  it  may  be  sold 
or  negotiated  for  the  benefit  of  the  person  accommodated,  and 
after  it  has  been  sold  or  negotiated  in  the  usual  course  of  busi- 
ness  for  value,  the  maker  will  not  be  listened  to  if  he  asserts  it 
was  without  consideration.  It  is  a  reasonable  rule,  that  one  who 
puts  his  note  or  bill  in  the  hands  of  another  to  be  sold  or  nego- 


248  ;  Grant  v.  Ellicott,  7  Wend.  227; 
Agawam  Bank  v.  Strever,  18  X.Y.  502; 
Youngs  V.  Lee,  12  lb.  551 ;  Ross  v.  Be- 
dell, 5  Duer,  462,  467;  Purchase  v. 
Mattison,  6  lb.  587 ;  Harrington  v. 
Dorr,  3  Rob.  275;  Tnglis  v.  Kennedy,  6 
Abb.  Pr.  32  ;  Seneca  County  Bank  v. 
Neas8,  5  Den.  329  ;  S.C.3  N.  Y.  442  ; 
Ross  V.  Whitefield,  1  Sweeny,  318; 
Pettigrew  v.  Chave,  2  Hilt.  546  ;  Mon- 
tross  V.  Clark,  2  Sandf.  115;  Schepp 
V.  Carpenter,  4  9  Barb.  542  ;  S.  C.  51 
N.  Y.  G02  ;  Freund  v.  Importers'  & 
Traders'  Nat.  Bank,  76  N.  Y.  352, 
358.  Ohio  :  Pitts  v.  Foglesong,  37 
Ohio  St.  676,  680. 

In  the  case  of  Powers  v.  French, 
1  Hun  (N.  Y.),  582;  S.  C.  4  T.  &  C. 
C5,  holding  that  one  taking  acconinio- 
dalion  paper,  knowing  it  to  be  .such, 
an<l  without  parting  with  anything 
upon  the  faith  of  the  trannfer,  cannot 


recover,  there  was  no  antecedent  debt 
to  support  the  transfer. 

1  Moore  v.  Ryder,  65  N.  Y.  438; 
Spencer  v.  Ballou,  18  lb.  327,  331  ; 
Bank  of  Rutland  v.  Buck,  5  Wend. 
(N.  Y.)  66.  And  see  Crandall  v. 
Viokery,  45  Barb.  (N.  Y.)  156. 

2  New  York  :  Merchants'  Nat. 
Bank  of  Syracuse  v.  Comstock,  55  N. 
Y.  24  ;  Boyd  v.  Cunimings,  17  lb.  101  ; 
Essex  Co.  Bank  i-.  Russell,  29  lb.  673  ; 
Bank  of  New  York  v.  Vanderhorst, 
32  lb.  553  ;  First  Nat.  Bank  v.  Hall, 
44  lb.  395;  Park  Bank  v.  Watson, 
42  lb.  490;  Mason  v.  Ilickox,  11  Abb. 
Pr.  N.  S.  127;  Piatt  v.  Beebe,  57 
N.  Y.  339.  Vermont  :  Quinn  v. 
Hard,  43  Vt.  375;  Dixon  v.  Dixon, 
31  lb.  450.  Maryland  :  INIaitlaiid  v. 
Citizens'  Nat.  Bank  of  Baltimore,  40 
Md.  540,  5G1. 

91 


§  124.]  PLEDGES   OF  NEGOTIABLE   PAPER. 

tiated,  after  it  is  done,  will  not  be  permitted  to  answer  the 
holder,  who  lias  taken  it  in  good  faith  for  value,  that  he  does 
not  owe  the  note  or  bill.  The  very  purpose  of  making  accom- 
modation paper  is,  that  the  party  favored  may  dispose  of  it,  and 
unless  restricted  he  may  transfer  it  either  before  or  after  matu- 
rit}',  and  the  maker  will  be  equally  bound.  The  usage  in  this 
regard  is  sanctioned  by  the  practice  that  has  prevailed  in  mer- 
cantile transactions  everywhere  in  this  country  and  in  England. 
That  usage  has  now  the  consistence  of  law.  Any  other  rule 
would  permit  the  maker  of  such  paper  to  practise  a  fraud  on 
persons  who  should  take  paper  he  had  put  out  to  be  negotiated 
in  the  usual  course  of  business.  The  only  safe  rale  is,  that  where 
a  bill  or  note  is  given,  with  no  restriction  as  to  the  mode  or  time 
of  using  it  by  the  party  accommodated,  and  the  same  has  been 
transferred  in  good  faith  in  the  usual  course  of  business,  the 
holder,  if  he  paid  a  valuable  consideration  for  it,  will  be  entitled 
to  recover  the  full  amount,  although  he  may  have  had  full 
knowledge  it  was  accommodation  paper.  The  authorities  on  this 
branch  of  the  law  are  consistent  and  numerous."  ^ 

124.  An  accommodation  note  may  be  effectually  pledged 
for  an  antecedent  debt.  "  When  a  person  gives  another  an 
accommodation  note,  it  contains  an  authority  to  use  it  in  the 
payment  of  an  existing  debt,  to  sell  or  discount  it,  or,  if  more  to 
his  interest,  to  pledge  it  as  a  collateral  security  for  money  ad- 
vanced at  the  time,  or  before  advanced,  or  on  a  running  account 
between  the  parties,  for  money  advanced  before,  at  the  time,  or 
afterward.  In  short,  he  has  the  complete  control  to  use  it,  as 
the  name  imports,  for  his  own  benefit  or  accommodation,  in  any 
manner  he  may  judge  best  calculated  to  advance  his  own  interest. 
If  he  can  prevent  a  suit  against  him,  by  pledging  the  note  inten- 
tionally drawn  in  the  usual  commercial  form,  and  intended  to  be 
used  without  restriction,  and  by  this  means  preserve  his  credit, 
there  is  nothing,  either  in  law  or  morals,  to  prevent  him.  Of 
what  consequence  is  it  to  the  maker  whether  he  sells  the  note, 
gives  it  as  a  collateral  security  for  a  debt  already  contracted,  or 
for  money  advanced  at  the  time  of  the  transaction?  Accommo- 
dation paper  is  a  loan  of  the  credit  of  the  maker  to  the  extent  of 
1  Miller  v.  Larned,  103  111.  562,  570. 

92 


COLLATERAL   FOR   A    PRE-EXISTING   DEBT.  [§  125. 

the  value  of  the  note,  for  the  benefit  of  the  payee,  without  re- 
striction.'" ^ 

The  maker  of  accommodation  paper  must  abide  his  liability, 
and  has  no  more  right  to  complain  that  the  payee  accommodates 
himself  by  pledging  it  for  an  old  debt,  than  he  has  if  he  uses  it 
in  any  other  way.^ 

The  ground  upon  which  accommodation  paper  may  be  pledged 
as  collateral  for  an  existing  debt  is  declared  in  the  Pennsylvania 
cases  to  be  merely  because  it  is  a  loan  of  credit  without  restric- 
tion,3  and  not  because  the  pledgee  is  a  purchaser  for  value,  for 
he  is  not  such  a  purchaser ;  *  therefore,  such  paper  may  be  im- 
peached in  his  hands  for  fraud  in  its  making  or  procurement, — 
such,  for  instance,  as  a  false  and  fraudulent  representation  by 
the  payee  for  whose  accommodation  the  note  was  made,  that  he 
was  worth,  above  all  liabilities,  a  hundred  thousand  dollars  or 
more,  when,  in  fact,  he  was  insolvent ;  or  his  fraud  in  promising 
to  fill  up  an  accommodation  note  signed  in  blank,  for  a  sum  not 
exceeding  six  hundred  dollars,  but  actually  making  it  fourteen 
hundred  dollars.^ 

125.  But  equities  arising  between  the  original  parties 
subsequently  to  the  indorsement  of  paper  to  a  creditor  cannot 
be  set  up  as  a  defence  to  his  action  against  the  maker.^  The 
test  to  determine  whether  the  note  is  subject  to  an  equity  set  up 
by  the  maker  is  found  in  the  inquiry  whether  the  payee,  at  the 
time  he  transferred  the  note,  could  have  maintained  a  suit  upon 
it  against  the  maker  had  it  then  matured.^ 

1  Appleton  V.  Donaldson,  3  Pa.  St.  220;  Trotter  r.  Shippen,  2  Pa.  St.  358; 
381.  Ludwig  V.  Hij^hley,   5  lb.   132,  139; 

2  Lord  v.  Ocean  Bank,  20  Pa.  St.  Kirkpatrick  y.  Muirliead,  16  lb.  117, 
384;  AVork  v.  Kase,  34  lb.  138;  123;  S.  C.  21  lb.  237;  Garrard  v. 
Moore  v.  Haird,  30  lb.  138  ;  Maitland  Pittsburgh  &  Connelsville  R.  R.  Co. 
V.  Citizens'  Nat.  Bank,  40  Md.  540,  29  lb.  154,  IGO;  Pittsburgh  &  Connels- 
562  ;  Pitts  v.  Foglosong,  37  Ohio  St.  ville  R.  R.  Co.  v.  Barker,  29  lb.  160. 
676,  681.  ^  Cuminings   v.  Buyd,   83    Pa.    St. 

8  Cummings  v.    Boyd,    83   Pa.    St.  ^'2. 

372  ;    Af-hton's  Appeal,    73  lb.   153;  ®  Becker  v.  Sandusky  City  Bank,  1 

Hutchinson  r.  Boggs,  28  lb.  294.  Minn.    311;  McSpedon    v.  Troy  City 

*  Pennsylvania:  Cases  in  preccd-  Baidc,  2  Keyes  (N.  Y.),   35;  S.  C.  3 

ing  note,  and  Pctrie  v.  Clark,  11  S.  &  ^bb.  Dec.  133. 

R.  377;  Irwin  v.   Tabb,    17  lb.  419;  ''  Furniss  «;.  Gilchrist,  1    Sandf.  (N. 

llartnian    r.  Dowdcl,    1    Rawlc,    279,  Y.)    5.!;   KIwcll    v.   Dodge,    33    Barb. 

282;  Twelves  v.  WiliiamH,   3   Whart.  i^-  Y.)  336. 

485;    Dfpeau   v.    Wuddington,    6    lb.  93 


§§  126-128.]  PLEDGES   OF   NEGOTIABLE   PAPER. 

126.  Equities  arising  from  independent  transactions.  — 
Under  this  rule,  all  equities  between  the  parties  to  the  collateral 
note  are  not  let  in  against  a  creditor  who  has  taken  it  as  security 
for  a  preexisting  debt ;  but  only  such  as  pertain  to  the  collateral 
note  itself.  Equities  arising  from  other  and  independent  transac- 
tions are  not  available  to  the  maker  against  such  assignee.^ 

127.  If  tiie  creditor  at  the  time  of  receiving  a  collateral 
note  parts  with  anything  of  value,  either  money,  property,  or 
existing  securities,  upon  the  faith  of  such  note,  he  thereby  be- 
comes a  holder  for  value. ^ 

Of  course,  a  surrender  of  collateral  securities  previously  given, 
or  affording  increased  indulgence  as  to  time,  is  a  sufficient  con- 
sideration for  an  assignment  of  negotiable  paper  by  way  of  new 
collateral.^  A  note  transferred  to  a  judgment  creditor  as  secu- 
rity for  the  payment  of  the  judgment,  and  in  consideration  of 
his  discontinuing  proceedings  supplementary  to  execution  then 
pending  against  the  debtor,  is  supported  by  a  sufficient  consid- 
eration.* 

128.  "^e  authorities  concur  in  the  rule  that,  where  there 
is  any  change  in  the  legal  rights  of  the  parties  in  relation 
to  the  antecedent  debt,  the  creditor  taking  the  collateral  secu- 
rity is  considered  a  holder  for  value,  and  the  paper  is  not  subject 
to  equities  existing  between  the  original  parties.'''  Upon  this 
ground  it  was  held  in  California  that  a  statute  which  deprived 
the  holder  of  collateral  security  of  his  remedy  against  the  prin- 
cipal debtor  by  attachment,  so  changed  the  legal  right  of  the 
creditor  in  respect  to  the  antecedent  debt  as  to  make  him  a 
holder  for  value,  and  protect  him  from  equitable  defences  ;  ^  al- 
though in  that  state,  upon  general  principles  of  mercantile  law, 

1  Ryan  r.  Chew,  13  Iowa,  589.  343  ;  Park  Bank  v.  Watson,  42  N.  Y. 

2  Bank  of  New  York  v.  Vander-  490;  Brown  v.  Leavitt,  31  lb.  113; 
horst,  32  N.  Y.  553;  Weaver  v.  Bar-  White  v.  Springfield  Bank,  3  Sandf. 
den,  49  lb.  286,   293  ;  Belmont  Bank  (N.  Y.)  222. 

I'.  Hoge,  35  lb.  65;  Brown  v.  Leavitt,  *  Boyd  v.  Cummings,  17  N.  Y.  101. 

31   lb.  113;  Essex  Co.  Bank  v.  Rus-  6  Naglee    v.    Lyman,    14  Cal.   450, 

sell,  29  lb.  673;  Boyd  v.  Cummings,  454,  per  Field,  c' J. 

17  lb.  101;  Youngs  v.  Lee,  12  lb.  551;  «  Naglee  v.  Lyman,  supra;   Payne 

Logan  V.  Smith,  62  Mo.  455.  v.  Bensley,  8  Cal.  260. 
^  Goodman  v.    Simonds,   20   How. 

94 


COLLATERAL   FOR   A   PRE-EXISTING   DEBT.      [§§  129,  130. 

commercial  paper,  transferred  before  maturity  as  collateral  secu- 
rity for  a  preexisting  debt,  is  not  subject  to  the  defences  open  to 
the  maker  against  the  payee. ^ 

129.  Agreement  for  further  time.  —  Under  this  doctrine, 
although  the  real  purpose  of  a  debtor  in  giving  collateral  security 
be  to  gain  further  time  for  the  payment  of  his  debt,  this  purpose 
will  not  avail  as  a  consideration,  unless  there  be  a  definite  a^ree- 
ment  for  delay.  Thus,  where  paper  was  pledged  as  additional 
security  for  a  loan  already  due,  for  the  purpose  of  obtaining  fur- 
ther time,  but  no  definite  extension  was  agi'eed  upon,  and  there 
was  no  valid  agreement  for  forbearance,  the  creditor  was  held 
not  to  be  a  bond  fide  holder  for  value.^  The  mere  fact  that  the 
creditor,  after  receiving  collateral  security,  grants  indulgence,  or 
forbears  to  enforce  his  demand,  does  not  prove  that  such  indul- 
gence or  forbearance  was  an  element  of  the  contract,  or  was  the 
consideration  for  giving  the  security.  Forbearance  without  any 
agreement  to  forbear  is  a  voluntary  act,  and  is  not  a  considera- 
tion for  the  giving  of  security.^ 

The  right  to  enforce  the  original  debt  is  regarded  as  suspended 
when  the  creditor,  taking  collateral  security,  expressly^grees  to 
keep  the  original  obligation  until  the  collateral  is  paid  of|Decoraes 
due.*  Such  an  agreement  is  in  effect  one  not  to  enforce  the  orig- 
inal bill  in  the  mean  time.  And  such,  also,  is  the  effect  of  re- 
ceiving a  second  bill  or  note  in  renewal  of  the  first ;  for  the  cred- 
itor then  virtually  undertakes  not  to  enforce  the  first. ^ 

130.  Merely  taking  collateral  security  does  not  suspend 
the  right  of  action  upon  the  debt.  Aside  from  the  doctrine 
that  an  antecedent  debt  is  not  a  valid  consideration  for  a  transfer 
of  collateral  security,  it  is  held,  with  reference  to  the  discharge 
of  a  surety  or  indorser  upon  the  original  debt,  that  no  binding 
agreement  to  delay  the  collection  of  the  debt  can  be  implied  from 

*  Koltin.son   v.   Smith,  14    Cal.   94;         »  Fenonille   v.   Hamilton,    35    Ala- 

Coitv.  Ilumhcrt,  5  lb.  2fiO.  319,  323;  Pittsburgh   &.  Connelsviile 

2  Athintic  Nat.  Banit   of   N.  Y.  v.  \\.  11.  Co.  v.  Harkcr,  29  i'a.  St.  IGO. 
Franklin,  .05   N.  Y.  235;  rcverwinjr   S.         <  (Jould  v.  Robson,  8  East,  57G. 
C'.CJ.  Harb.  419;  Oalin  v.  NifMucowicz,         ^  Kcndriik  v.  Loniax,  2   Cronipt.  & 

11    Wen.l.   (N.   Y.)   312;   Whitney   v.  J.  405. 
Goin,  20  N.  H.  .'55  J  ;  Body  v.  Juwscn, 
33  Wis.  402. 

95 


§  131.]  PLEDGES   OF   NEGOTIABLE  PAPER. 

the  creditor's  taking  a  promissory  note,  or  other  obligation  paya- 
ble at  a  future  time,  as  collateral  security  ;  and,  therefore,  the 
taking  of  such  security  does  not  have  the  effect  to  discharge  the 
surety,  unless  there  be  a  binding  contract  to  suspend  the  right  of 
action  upon  the  original  debt.^ 

131.  Usurious  agreement  for  extension.  —  A  creditor  who 
takes  a  negotiable  note  before  maturity,  so  indorsed  that  he  be- 
comes a  party  to  the  instrument,  as  collateral  security  for  a  preex- 
isting debt,  under  a  binding  contract  for  indulgence,  is,  according 
to  the  law  merchant,  a  holder  for  value,  and  his  rights  cannot  be 
affected  by  equities  between  antecedent  parties,  of  which  he  had 
no  notice.'^  When  there  is  such  a  consideration,  it  does  not  mat- 
ter that  there  enters  into  the  consideration  for  the  extension  a 
payment  of  usurious  interest,  for  the  period  of  extension,  so  that 
the  consideration  becomes  in  part  legal,  and  in  part  vicious.  The 
former  is  itself  sufficient  to  sustain  the  contract  of  extension  and 
transfer  of  the  collateral  note,  and  to  constitute  the  creditor  a 
holder  for  value.  Upon  this  point  the  Supreme  Court  of  the 
United  States  will  not  follow  the  decisions  of  the  courts  of  the 
state  in  which  the  case  arose,  holding  that  one  taking  a  note  in 
violation  of  the  statute  against  usury  shall  not  be  regarded  as  a 
bond  fide  holder  for  value ;  ^  for  the  question  is  one  of  general 
commercial  law,  upon  which  the  courts  of  the  United  States  are 
not  bound  by  the  decisions  of  the  local  courts.^ 

A  contract  for  the  extension  of  the  time  of  payment  of  a  debt 
is  none  the  less  binding  because  it  was  induced  by  a  payment  of 
usurious  interest  in  advance.  Althoucrh  the  taking  of  usurious 
interest  may  subject  the  creditor  to  certain  forfeitures  prescribed 

1  Princr  V.  Clarkson,  1  B,  &  C.   14;  553,   564;   Weakly  v.   Bell,    9   Watts 

Twopenny  v.  Young,  3  lb.  208;  Ernes  (Pa.),   280;  Burke  v.  Cruger,  8  Tex. 

r.  Widdowson,  4  C.  &  P.  151;  United  G6;    Norton    v.    Eastman,    4    GreenL 

Stalest;.  Hodge,  6  How.  279;  Wallace  (Me.)  521. 

V.    Agry,    4   Mason,    336;    Ripley   v.  2  Qates  r.  First  Nat.  Bank  of  Mont- 

Greenleaf,  2  Vt.  129  ;  Day  t'.  Leal,  14  gomery,    100    U.   S.   239;    S.    C.   12 

Johns.  (N.  Y.)  404;  Bank  of  Utica  v.  Chicago  L.  N.  119  ;  9  Rep.  97;  Good- 

Ives,  17  Wend.  (N.  Y.)  501;  Elwood  man  v.  Simonds,   20  How.  343,  353, 

V.  Deifendorf,  5  Barb.   (N.  Y.)   398,  per  Clifford,  J. 

409  ;  James  v.  Badger,  1  Johns.  (N.  a  Q^tes  v.  First  Nat.  Bank  of  Mont- 

Y'.)  Cas.  131 ;  Hurd  v.  Little,  12  Mass.  gomery,  supra. 

502;  Ruggles  v.  Patten,  8  lb.  480;  Si-  4  Oates  v.  First  Nat.  Bank  of  Mont- 

gourney  v.  Witherell,  6  Met.  (Mass.)  gomery,  supra. 
96 


COLLATERAL  FOR   A   PRE-EXISTING  DEBT.  [§  132. 

by  law,  and  to  an  action  by  the  debtor  for  the  recovery  of  the 
amount  so  paid  by  him,  it  does  not  enable  the  creditor  to  avoid 
the  contract  for  indulgence.^ 

132.  Cases  in  which  negotiable  paper  is  taken  by  a  cred- 
itor as  conditional  payment  of  a  precedent  debt  have  some- 
times been  distinguished  from  those  in  which  it  is  taken  merely 
as  collateral  securit3^^  If,  for  instance,  the  holder  of  a  promis- 
sory note  at  its  maturity  accepts  from  the  maker  a  check,  dated 
ahead  and  drawn  by  the  maker's  firm,  with  the  agreement  that 
the  check,  if  paid  at  maturity,  is  to  be  in  full  satisfaction  of  the 
note,  the  remedy  against  the  maker  is  thereby  suspended,  and  an 
accommodation  indorser  is  discharged.^  "  The  law  is  clear,"  said 
Lord  Kenyon,*  "  that  if  in  payment  of  a  debt  the  creditor  is  con- 
tent to  take  a  bill  or  note  payable  at  a  future  day,  he  cannot 
legally  commence  an  action  on  his  original  debt  until  such  bill 
or  note  becomes  payable."  The  distinction  between  the  two 
classes  of  cases  above  referred  to  is  well  stated  by  Judge  Bennett 
in  Austin  v.  Curtis.^  "  As  I  understand  the  cases,  there  is  a  class 
of  securities,  payable  on  time,  the  taking  of  which  on  an  ante- 
cedent debt  implies  an  agreement  for  the  suspension  of  the  an- 
tecedent debt  ;  but  that  class  of  cases  is  confined  to  those  where 
the  creditor  accepts  the  note  or  bill  for  and  on  account  of  the 
antecedent  debt,  and  the  new  security,  for  the  time  being  at 
least,  is  to  take  the  place  of  and  represent  the  original  debt. 
That  class  is  distinguishable  from,  and  not  to  be  confounded  with, 
the  class  where  the  creditor  has  accepted  simply  a  new  additional 
or  collateral  security  for  an  antecedent  debt.  In  the  former 
transaction,  an  agreement  to  give  time  may  be  implied,  but  not 
out  of  the  latter  transaction.     There  the  new  security  is  held 

1  Saltmarsh  v.  Tutliill,  13  Ala.  390,  Y.),463;  Fellows  i>.  Prentiss,  3  Denio 
410;  Carlisle  v.  Iliil,  16  lb.  398,  40G.  (N.  Y.),  512.    See  Cumc  i;.  Misa,  L. 

2  Kearslake  v.  Morgan,  5  T.  K.  11.  10  Ex.  153,  for  the  case  of  a  eon- 
513;  Clark,  r.  Youn(r,  1  Crancli,  181,  dilional  payment  by  check  on  ac- 
—  the  latter  not  consistent  with  Weak-  count. 

ly  V.  Bell,  9  Watts  (Pa.),  273,  280.  *.  Stednian  v.  Gooch,  1  Esp.  3. 

8  Okie  V.  Spencer,  2   Whart.  (Pa.)  ^  31  Vt.  64,  75;  overruling  the  cases 

253.    The  reasoning  of  Kennedy,  J.,  in  of   Atkinson   v.   Brooks,   26   Vt.  569, 

giving  the  decision,  is  open  to  objec-  and  Michigan  State  Bank  v.  Estate  of 

tion.    See  Aiislin  v.  Curtis  31  Vt.  64,  73,  Leavenworth,  28  lb.  209,  so  far  as  they 

And  see  Myers  v.  Welles,  5  Hill  (N.  contlict. 

7  97 


§  133.]  PLEDGES   OF  NEGOTIABLE  PAPER. 

only  as  a  pledge,  leaving  the  creditor  with  the  right  to  enforce 
the  old  security  whenever  he  shall  see  fit  to  withdraw  any  ex- 
pected indulgence  to  the  principal,  and  at  the  same  time  leaving 
to  the  surety  the  right  of  coming  into  a  court  of  equity  at  any 
time  for  relief.  ...  I  apprehend  the  distinction  in  the  cases  is 
well  taken,  and  that  while  an  agreement  to  give  time  may  be  im- 
plied in  the  case  where  the  new  security  takes  the  place  of,  and 
stands,  for  the  time  being,  in  lieu  of  the  old  security  ;  yet,  if  the 
new  security  is  but  additional  and  collateral  to  the  old,  I  think  it 
may  well  be  said  that  the  fact  of  taking  the  new  security  on 
time  does  not  prove  a  promise  to  give  time,  but  doubtless  may 
furnish  ground  for  an  expected  indulgence  which  the  principal 
debtor  is  bound  to  treat  as  being,  at  all  times,  countermandable 
at  the  will  of  the  creditor." 

133.  The  transaction  is  governed  by  the  law  of  the  place 
where  the  pledge  is  made.  Thus,  if  a  broker  in  New  York,  to 
whom  negotiable  securities  are  intrusted  to  raise  money  upon  for 
the  owner,  deliver  them,  as  security  for  a  preexisting  debt  of  his 
own,  in  Massachusetts,  or  any  other  state,  by  the  law  of  which 
the  receiving  of  a  negotiable  note  as  security  for  a  preexisting 
debt  excludes  all  equities  between  the  original  parties,  the  trans- 
fer must  be  dealt  with  according  to  the  law  of  Massachusetts,  or 
such  other  state ;  and  the  pledgee  taking  such  securities  in  good 
faith  before  maturity  obtains  a  good  title  to  them  to  the  amount 
of  the  debt  for  which  they  are  pledged.^  If,  on  the  other  hand, 
a  negotiable  note  be  delivered  in  New  York  as  collateral  security 
for  a  precedent  debt,  the  transaction  is  governed  by  the  law  of 
that  state  ;  and  in  a  suit  upon  such  note  in  another  state,  where 
the  rule  is  that  one  taking  paper  as  security  for  a  precedent  debt 
is  a  holder  for  value  in  the  usual  course  of  business,  the  law  of 
New  York,  that  such  a  transfer  does  not  constitute  one  a  holder 
for  value,  must  be  applied.^ 

1  Culver    V.    Benedict,    13     Gray        ^  jjussell  v.  Buck,  14  Vt,  147. 
(Mass.),  7. 

98 


CHAPTER   IV. 


PLEDGES   OF   NON-NEGOTIABLE   CHOSES   IN    ACTION. 


I.  The  effect  of  such  pledges,  134-136. 
n.  Pledges  of  mortgages,  137-144. 
in.  Pledges    of    policies   of    insurance, 
145-147. 


IV.  Pledges  of  savings  bank  books,  148. 
V.  Pledges  of  judgments,  149. 
VL  Pledges  of  land  certificates,  150. 


I.   Tlie  Effect  of  such  Pledges. 

134.  Non-negotiable  securities  are  always  subject  in  the 
hands  of  a  pledgee  to  existing  equities.  Thus,  a  pledgee  of  a 
non-negotiable  demand,  such  as  a  certificate  of  the  amount  due  a 
person  on  account,  can  transfer  to  another  only  the  same  rights 
as  the  owner  parted  with  when  he  assigned  it ;  he  transfers  it 
subject  to  all  the  rights  and  equities  of  the  owner,  unless  the 
latter  is  by  his  acts  estopped  from  asserting  them.  Thus,  if 
the  owner  of  such  a  demand  indorse  in  blank  a  certificate  of 
the  amount,  and  pledge  it  for  a  loan,  and  the  pledgee  sells  the 
certificate  in  this  form  to  another,  the  purchaser  takes  only  the 
interest  of  the  pledgor,  and  must  surrender  the  claims  upon  re- 
ceiving the  amount  of  such  loan.^ 

But  in  this  same  case  it  would  seem  that  if  the  pledgee  had 
written  an  absolute  assignment  of  the  demand  to  himself  over 
the  blank  indorsement  of  the  owner,  as  he  was  virtually  author- 
ized to  do  by  an  indorsement  in  this  form,  and  had  then  himself 
sold  the  demand  in  this  form  to  a  purchaser  for  value  in  goc»d 
faith,  the  latter  would  have  acquired  a  good  title  to  the  whole 
demand.  The  owner  would  have  been  estopped  by  his  own  act 
from  asserting  any  title  as  against  such  purchaser.  This  estop- 
pel arises  from  the  well-settled  principle  that  when  the  owner  of 
property  in  any  form  clothes  another  with  the  apparent  title  or 
power  of  disposition,  and  third  persons  are  thereby  induced  to 
deal  with  him,  they  are  entitled  to  lull  protection.^ 

^  Cowdrey  v.  Vaudcnburyh,  101  U.  '^  Cowdroy  v.  Viindcnburgli,  siipni, 
S.  672.  per  Field,  J. 

99 


§  135.]        PLEDGES   OF  NON-NEGOTIABLE   CHOSES   IN   ACTION. 

135.  A  bona  fide  purchaser  for  value  of  a  non-negotiable 
chose  in  action,  from  one  upon  whom  the  owner  has,  by  assign- 
ment, conferred  the  apparent  absolute  ownership,  obtains  a  valid 
title  as  against  the  real  owner,  who  is  estopped  from  asserting  a 
title  in  hostility  thereto.  Although  the  pledgor  in  such  case  has 
not  transferred  a  legal  title,  having  conferred  the  apparent  owner- 
ship, he  is  precluded  from  asserting  his  title  against  a  bond  fide 
purchaser  from  such  apparent  owner ;  for,  the  purchase  having 
been  made  upon  the  faith  of  the  title  which  the  owner  had  ap- 
parently given,  it  would  be  contrary  to  justice  and  good  con- 
science to  permit  him  to  assert  his  real  title  against  the  purchaser. 
Moreover,  it  would  open  the  door  for  fraud  upon  purchasers  of 
such  property,  if  the  owner,  after  transferring  it  by  an  absolute 
written  transfer,  were  permitted  to  come  in  and  assert  his  title 
against  one  dealing  upon  the  faith  of  such  transfer :  the  dishonest 
might  combine  and  practise  the  grossest  frauds.^  Again,  the 
maxim  that,  where  one  of  two  innocent  parties  must  sustain  a 
loss  from  the  fraud  of  a  third,  such  loss  should  fall  upon  the  one 
whose  act  has  enabled  such  fraud  to  be  committed,  is  applicable 
in  such  cases.2 

Thus,  if  the  payee  of  a  non-negotiable  certificate  of  deposit  in- 
dorse it  in  blank,  and  deliver  it  as  security  for  a  loan,  the  pledgee 
may  make  a  valid  pledge  of  the  certificate  to  an  innocent  party, 
who  will  hold  it  without  reference  to  the  equities  between  the 
payee  and  his  pledgee.  The  last  pledgee  is  authorized  to  infer 
absolute  ownership  and  full  right  in  the  holder  to  pledge  the 
certificate  ;  though,  as  against  the  payee,  his  recovery  would  be 
limited  to  the  amount  of  his  loan  upon  the  certificate.^ 

A  recital,  however,  in  an  assignment  of  a  chose  in  action  by 
the  apparent  owner,  that  it  was  made  for  value  received,  is  not 

1  Moore  v.  Metropolitan  Nat.  Bank,  set  over  to  Isaac  Miller  the  within-de- 

55  N.  Y.  41  ;  overruling  Bush  v.  La-  scribed  amount,  say  ten  thousand  dol- 

throp,  22  N.Y.  635.     Question  raised  lars." 

but  not  passed  upon  in  Talty  v.  Freed-  2  Moore  v.  Metropolitan  Nat.  Bank, 

man's   Savings  &  Trust  Co.  93  U.  S.  supra ;   Fullertoa  v.  Sturges,  4  Ohio 

321.     The  chose  in  action  in  Moore  St.  529. 

V.  Metropolitan  Nat.  Bank,  supra,  was  s  International    Bank    v.    German 

a  certificate    of   indebtedness   of   the  Bank,  71  Mo.  183;  Weirick  r.  Maho- 

State  of   New  York  for  810,000,  as-  ning  Co.  Bank,  IG  Ohio  St.  296;  and 

signed   as   follows :    "  For   value   re-  also  Combes  v.  Chandler,  33  Ohio  St. 

ceived,  1  hereby  transfer,  assign,  and  178. 

100 


PLEDGES   OF   MORTGAGES.  [§§  136,  137. 

evidence  in  favor  of  the  assignee  against  the  real  owner  that  it 
was  for  value,  although  he  himself  introduce  the  assignment  in 
evidence.  The  assignee  must  prove  affirmatively  that  he  is  a 
bond  fide  purchaser  for  value.^ 

136.  The  assignment  of  a  chose  in  action  as  security  is 
valid  without  notice  to  the  debtor  of  the  assignment.  The 
assignment  is  complete  upon  the  mutual  assent  of  the  parties  to 
it,  followed  by  a  delivery  ;  and  it  does  not  gain  additional 
validity  as  against  third  persons  by  notice  to  the  debtor.^ 

II.  Pledges  of  Mortgages. 

137.  A  mortgage  with  the  note  or  bond  secured  by  it  may 
be  the  subject  of  a  pledge  by  the  mortgagee  or  holder.  Though 
the  transfer  be  by^n  absolute  assignment,  yet  if  it  be  accom- 
panied by  the  debtor's  note,  which  gives  his  creditor  authority  to 
sell  the  mortgage  upon  the  debtor's  default  in  paying  his  debt, 
the  transaction  is  a  pledge  of  the  mortgage,  and  not  a  sale  or 
mortgage  of  it.^  The  assignee  in  such  case  has  only  a  special 
property  in  the  mortgage,  and  is  subject  to  all  the  duties  and 
obligations  of  a  pledgee.  Thus,  if  such  assignee  without  demand 
or  notice  transfer  the  mortgage  to  a  third  person  for  a  grossly 
inadequate  price,  and  the  latter  cancels  it,  the  creditor  is  liable 
to  his  debtor  in  trover  for  a  conversion  of  the  mortgage.* 

In  some  early  cases  an  assignment  of  a  bond  or  note  and  mort- 
gage is  spoken  of  as  in  itself  a  mortgage.^  "Whether  a  par- 
ticular transaction  is  a  mortgage  or  a  pledge  is  often  a  very  nice 
question ;  and  being  a  question  of  difficulty,  courts  have  in  many 
instances  used  the  terms  '  mortgage '  and  '  pledge  '  indilferently, 
when  it  was  not  necessary  to  observe  the  distinction  between 
them.  But  when  the  real  character  of  the  transaction  is  mani- 
fested by  the  language  of  the  parties  to  the  contract,  disclosing 
their  purpose  and  intention,  all  that  a  court  has  to  do  is  to 
recognize  its  real  and  true  character,  and  to  carry  into  effect  by 

1  Moore  v.  Metropolitan  Nat.  Bank,  Y.)  322  ;  ITaskins  v.  Kelly,  1  Rob.  (N. 

55  N.  Y.  41.  Y.)  1(50  ;  S.  C.  1  Abb.  I'r.  N.  S.  U3. 

'■*  Thayer  v.  Daniels,  113  Mass.  129.  *  Campbell  v.  Parker,  supra. 

Otherwise  in  England  :   Dearie  v.  ''  Henry  v.  Davis,  7  Johns.  (N.  Y.) 

Hall,  3  Ru88.  1 ;  Loveri(l<rc  v.  Cooper,  Ch.  40;    S.  C.  2   Cow.  324;   Sleo  v. 

8  RuH8.  .30;  Meux  v.  Bell,  1  Hare,  73.  Manhattan  Co.  1  Paige  (N.  Y.),48. 


'  Campbell  v.  Parker,  9  liosw.  (N. 


101 


§§  138-140.]      PLEDGES   OF  NON-NEGOTIABLE   CHOSES   IN   ACTION. 

an  appropriate  decree  the  parties'  declared  intention."  i  Ac- 
cordingly a  note  and  mortgage  may  be  the  subject  of  either  a 
pledge  or  a  chattel  mortgage. 

138.  If  the  form  of  the  assignment  of  a  chose  in  action  be 
that  of  a  mortgage  of  it  with  a  condition  of  defeasance,  the 
transaction,  in  the  absence  of  any  other  decisive  characteristic, 
should  be  regarded  as  a  mortgage  rather  than  a  pledge.  Thus 
if  a  life  insurance  policy  be  assigned  by  an  instrument  having 
throughout  the  form  of  a  mortgage,  or  if  the  assignment  on  the 
one  side  and  the  receipt  on  the  other,  taken  together,  are  such  in 
form,  the  purport  and  substance  of  the  contract,  and  the  inten- 
tion of  the  parties  as  disclosed  by  the  language  used  to  express 
it,  indicate  a  mortgage  rather  than  a  pledge.^ 

139.  To  constitute  a  valid  pledge  of  a  mortgage  or  other 
lien,  there  must  be  either  a  legal  transfer  by  signing  and 
delivering  a  written  assignment  of  it,  or  there  must  be  some 
other  actual  or  symbolical  delivery  of  possession  ;  such  for  in- 
s-tance  as  the  delivery  of  the  mortgage  and  note,  or  the  note 
alone.  A  mere  agreement  of  the  parties  that  there  shall  be  a 
pledge  of  the  mortgage,  without  any  such  transfer  or  deliverj'^,  is 
insulficient.3  The  same  rule  applies  to  the  pledge  of  any  other 
like  security ;  such  for  instance  as  a  policy  of  insurance.  A  con- 
tract or  promise  to  transfer  or  deliver  it  in  pledge  does  not  avail 
to  make  it  a  pledge  unless  it  be  transferred  or  delivered  in  pur- 
suance of  such  contract  or  promise.* 

140.  An  ordinary  absolute  assignment  of  a  mortgage 
with  the  note,  made  by  -way  of  security  for  another  debt, 
is  a  pledge  rather  than  a  mortgage.  Probably  such  a  transfer 
w^ould  generally,  in  the  absence  of  controlling  circumstances, 
be  regarded  as  a  pledge.^  But  there  may  be  a  mortgage  of  a 
mortgage,  and  this  is  the  legal  effect  of  an  assignment  of  a  mort- 

1  Wright  V.  Ross,  36  Cal.  414,  429,  528  ;  Caffin  v.  Kirwan,  7  La.  Ann. 
per  Currey,  C.  J.  ;  and  see  Dungan  v.     221. 

Mut.  Benefit  L.  Ins.  Co.  38  Md.  242,  ^  Succession    of    D'Meza,    26    La. 

252,  per  Miller,  J.  Ann.  35. 

2  Dungan  v.  Mut.  Benefit  L.  Ins.  «  Fraker  v.  Reeve,  36  Wis.  85. 
Co.  38  Md.  242.  See,  also,  Gay  v.  Moss,  34  Cal.    125, 

*  Sevin  i'.  Caillouet,  30  La.   Ann.     where  an    absolute   assignment  of   a 
102  contract  was  so  regarded. 


PLEDGES   OF  MORTGAGES.  [§§  141,  142. 

gage,  upon  the  express  condition  that  the  assignment  shall  be 
void,  if  default  be  made  by  the  assignor  in  the  payment  of  the 
draft  secured  by  the  assignment.  An  assignment  of  a  note  and 
mortgage  of  real  property  made  in  the  usual  form  of  a  chattel 
mortgage,  expressed  to  be  for  the  purpose  of  securing  a  sum  of 
money,  and  providing  that  if  the  assignee  collects  the  money  he 
is  to  account  for  any  surplus  there  may  be,  may  be  regarded  as  a 
chattel  mortgage,  especially  if  the  instrument  be  so  denominated 
in  the  terms  of  it.^ 

141.  Generally  the  fact  that  a  mortgage  is  assigned  as  col- 
lateral security  does  not  appear  on  the  face  of  the  assign- 
ment. If  the  assignment  be  absolute  in  form,  the  fact  that  it 
was  made  as  collateral  security  may  be  shown  by  parol  evidence, 
just  as  an  absolute  conveyance  of  real  property  may  by  such 
evidence  be  shown  to  be  a  mortgage ;  or  as  an  absolute  bill 
of  sale  may  be  shown  to  be  a  mortgage  or  pledge  of  personal 
property. 

In  an  assignment  of  a  mortgage  as  collateral  security,  a  recital 
of  the  consideration  is  not  alone  constructive  notice  that  the 
assignee  holds  the  mortgage  as  security  for  that  sum.  Thus 
where  a  mortgage,  securing  a  promissory  note,  not  due,  for  fifteen 
hundred  dollars,  was  assigned  absolutely  as  security  for  a  loan  of 
three  hundred  dojlars,  and  this  sum  was  recited  as  the  considera- 
tion for  the  assignment,  and  subsequently  the  assignee  pledged 
the  mortgage  for  a  loan  of  twelve  hundred  dollars, Jt  was  held 
that  the  first  pledgor  could  not  redeem  the  mortgage  from  the 
last  assignee,  except  upon  payment  of  the  sum  which  the  latter 
had  advanced  upon  it.^  The  recital  in  the  first  assignment,  of 
the  consideration,  was  not  sufficient  to  put  the  last  assignee  on 
inquiry,  or  to  prove  fraud  on  his  part. 

142.  A    delivery   of    a   note    and   mortgage    as    collateral 

^  Wright     V.    Ross,    36     Cal.    414.  transferred  to  him  a  prood  title  to  the 

And  see  Dewey  r.  Bowman,    8    Cal.  mortf^age  security.     It  is  not  enough 

l'J.">,  150;  Wendell  y.  New  Hampshire  that   an    over   prudent   and   cautious 

IJank,  'J  N.  II.  404.  person,     if    his    attention    had    heen 

^  Jiriggs  r.  Rice,  130  Mass.  50,  51.  called    to  the   circumstance    in  ques- 

"  As   a   prudent  man,  taking  a  note  tion,  would  have  been   likely  to  seek 

not  yet  due,  it  was  suflicient  for  the  an  explanation  of  it."     Per  Colt, . I. 
assignee  to  know  that  the  assi<'nment 

103  ' 


§  142.]        PLEDGES   OF  NON-NEGOTIABLE   CHOSES  IN   ACTION. 

security,  without  any  written  assignment,  is  a  valid  equitable 
pledge  of  those  securities,  which  courts  of  law  will  take  notice  of 
and  protect.^  A  negotiable  note  may  be  pledged  by  delivery 
without  indorsement,  in  which  case  the  legal  title  will  remain  in 
the  payee,  but  he  will  hold  this  title  for  the  benefit  of  the  pledgee, 
so  long  as  the  latter  retains  possession  of  the  note  as  security. 
The  payee  may,  while  the  note  is  so  held,  indorse  it,  and  thereby 
transfer  the  legal  title  to  another,  who  will  then  hold  such  title  as 
it  was  before  held  by  the  payee,  that  is,  subject  to  the  equitable 
claim  of  the  pledgee.^ 

Non-negotiable  paper  may,  like  that  which  is  negotiable,  be 
effectually  pledged  by  indorsement  and  delivery  by  the  payee  or 
owner  3  of  such  paper,  or  b}^  delivery  without  indorsement. 

A  pledgee  of  bonds  of  a  corporation  which  are  secured  by  a 
mortgage  is  entitled  to  a  proportionate  part  of  the  security ; 
and  though  the  pledge  was  made  by  the  corporation  itself,  the 
pledgee  is  entitled,  upon  a  foreclosure  of  the  mortgage,  to  prove 
the  whole  amount  of  his  bonds,  and  to  share  in  the  distribution 
up  to  the  amount  of  his  debt,  and  is  not  limited  to  proof  of  an 
amount  simply  equal  to  the  amount  of  his  debt.^ 

A  promissory  note  or  a  corporate  bond  made  negotiable  in 
form,  and  delivered  before  maturity,  confers  upon  the  holder  a 
title  which  is  not  subject  to  equities  existing  between  the  original 
parties  ;  and  if  such  note  or  negotiable  corporate  bond  be  secured 
by  a  mortgage,  the  mortgage  being  but  an  incident  of  the  debt, 
the  negotiable  character  of  the  latter  is  imparted  to  the  former, 
to  the  extent  that  the  assignee  of  a  mortgage  securing  such 
negotiable  debt,  taking  it  in  good  faith  before  maturity,  takes  it 
free  from  any  equities  existing  between  the  original  parties.^ 

But  if  the  debt  be  not  negotiable,  the  pledgee  of  the  mort- 
gage will  take  it  subject  to  the  equities  between  the  original 
parties.  An  ordinary  mortgage  bond  being  non-negotiable,  a 
pledgee  of  a  mortgage  and  mortgage  bond  will  hold  his  pledge 
subject  to  existing  equities  between  the  original  parties.  Thus, 
a  mortgage  and  bond  executed  to  secure  a  vendor  under  a  con- 

1  Grain  v.  Paine,  4  Cush.  (Mass.)  *  Duncomb  v.  N.  Y.,  Housatonic  & 
483.  Northern  R.  R.  84  N.  Y.  190;  Lehman 

2  Proctor  V.  Baldwin,  82  Ind.  370.        v.  Tallassee  Manuf.  Co.  64  Ala.  567. 
8  Norton  v.  Piscatatjua  Ins.  Co.  Ill         ^  JoQes  on  Mortgages,  §  834. 

Mass.  532;  Jones  v.  Witter,  13  Mass. 
304. 

104 


PLEDGES   OF   MORTGAGES.  [§§  143,  144. 

tract  for  a  purchase  of  land,  and  not  in  pa5'ment  of  an  instal- 
ment of  the  purchase  money,  not  being  negotiable  securities, 
are  subject  in  the  hands  of  an  assignee  to  the  equities  existing 
between  the  original  parties ;  and  upon  a  rescission  by  them  of 
the  contract  of  sale,  the  principal  indebtedness  is  extinguished, 
and  the  validity  of  the  bond  and  mortgage  destroyed.^ 

143.  A  mortgage  note  or  bond  without  the  mortgage  may- 
be the  subject  of  a  pledge,  and  will  give  the  pledgee  the  benefit 
of  the  mortgage  security .^  It  would  seem  that  ordinarily  a  simple 
transfer  in  absolute  form  of  a  mortgage  note  to  a  creditor,  as  secu- 
rity for  a  debt,  is  to  be  regarded  as  a  pledge  rather  than  a  mort- 
gage. Such  a  transfer  carries  the  legal  title  to  the  note  and  the 
equitable  title  to  the  mortgage  property.  It  carries  with  it  the 
mortgage  lien,  as  an  accessory  to  the  debt ;  and  it  carries  with 
it  any  other  lien  which  secures  such  principal  obligation. ^ 

The  first  pledgee  of  a  mortgage  note  or  bond  may  repledge  it 
with  like  effect ;  or  he  may  by  agreement  with  the  mortgagor 
transfer  the  mortgage  note  to  another  who  advances  or  pays  to  the 
first  pledgee  the  amount  due  him  upon  the  security,  whereupon 
the  latter  transferee  is  subrogated  to  the  rights  of  the  former, 
and  will  hold  the  note  and  mortgage  as  security  for  the  money 
advanced.* 

144.  A  debtor  may  give  his  own  note  and  mortgage  as 
collateral  security  for  another  note  made  by  him,  or  for  any 
distinct  debt.  But  there  must  be  a  debt  to  be  secured  distinct 
from  that  created  by  the  note  and  mortgage,  otherwise  these 
create  the  principal  debt.  Thus  if  a  note  and  deed  of  trust  be 
given,  on  tlie  purchase  of  land,  for  a  portion  of  the  purchase 
money,  they  are  not  collateral  security,  but  the  principal  debt ; 
and  they  are  not  converted  into  collateral  security  by  the  vendor's 
giving  the  purchaser  a  written  agreement  to  accept  a  less  sum  if 
paid  within  a  short  period,  instead  of  the  period  expressed  in  the 
note,  and  to  assign  the  note  and  mortgage  to  enable  the  pur- 

1  Wanzer  ?;.  Gary,  76  N.  Y.  526.  »  Kamena  v.  ITuclhig,  2.3  N.  J.  Eq. 

2  Morris  Canal  &  Hanking  Co.  v.  78;  IMoclianics'  HiiiKling  Association 
Fii-licr,  9  N.  J.  Efj.  66  7;  L<x;wenthal  v.  Fc-rguson,  29  La.  Ann.  518;  iswope 
V.  McConnick,  101  111.  143;  Logan  v.  v.  Leflingwell,  72  Mo.  34H. 

Smith,  02  Mo.  455.  *  Ltjcwenthal  y.  McCorniick,  sujjra. 

105 


§  145.]         PLEDGES   OF  NON-NEGOTIABLE   CHOSES  IN  ACTION. 

chaser  to  borrow  the  money.     The  note  and  mortgage  in  such 
case  are  merely  evidence  of  the  original  indebtedness.^ 

III.  Pledges  of  Insurance  Policies. 

145.  A  life  insurance  policy  may  be  eflfectually  pledged  by 
delivery  either  with  or  without  a  written  assignment,^  although 
the  policy  contains  a  condition  that  it  shall  be  void  if  assigned 
without  the  written  consent  of  the  insurers.^  The  condition  does 
not  prevent  the  transfer  or  pledge  of  the  policy.  It  reserves  to 
the  insurers  the  right  to  give  or  refuse  their  consent  to  such 
transfer  ;  and  the  insurers  may  at  their  election  avoid  the  policy 
if  it  be  transferred  without  their  consent.  The  effect  of  the  con- 
dition is  to  defeat  the  policy  ;  not  to  defeat  the  transfer.  Such 
a  pledge  having  been  made  to  a  person  residing  in  the  state  in 
which  the  insurers  were  chartered  as  a  corporation,  he  may  in 
his  own  name  by  a  bill  in  equity,  or  in  the  name  of  the  adminis- 
trator of  the  insured,  enforce  his  claim,  if  the  compan}'-  see  fit 
to  waive  the  condition,  and  the  administrator  could  not  defeat 
the  prosecution  of  the  suit.  If  an  administrator  be  appointed  in 
Illinois,  where  the  deceased  had  his  domicil,  and  he  brings  suit 
there  against  the  insurers,  and  obtains  an  injunction  against  the 
company's  paying  the  policy  to  a  creditor  holding  the  policy 

^  Harding  v.  Commercial  Loan  Co.  eys  for  this  purpose,  and  the  policy 

84    111.    251.      See  Morris    Canal    &  shall  stand  charged  for  the  payment 

Banking   Co.  v.  Fisher,  9  N.  J.  Eq.  of  such  advances.     A  power  is  given 

667,  685,   701  ;  Seymour  v.  Lewis,  19  to  the  mortgagee  in  case  of  default  to 

Wend.  (N.  Y.)  512.     But  see  Atlan-  sell  the  policy  at  public  auction  or  pri- 

tic  F.  &  M.  Ins.  Co.  v.  Boies,  6  Duer  vate  sale,  or  to  surrender  it  to  the  of- 

(N.  Y.),  583.  fice   which   issued   it.     Frequently   a 

2  Collins  V.  Dawley,  4  Colo.  138;  surety  joins  in  all  the  covenants  of  the 

Norwood  V.  Guerdon,  60  111.  253.  mortgage. 

In  England   policies  of   life  assur-         Such  a  mortgage  of  a  policy  affords 

ance   are   frequently  the   subjects   of  a  much  better  security  than  a  pledge, 

mortgages.     The  mortgage  is  formally  especially   if    this    be    made   without 

drawn  with  full  and  elaborate  recitals,  writing.     For  a  form  of  such  a  mort- 

covenants,  and  powers.    It  assigns  the  gage,    see   Davidson's   Precedents   in 

policy,  with  a  proviso  for  redemption  Conveyancing,  4th  ed.  1881,  vol  2,  pt. 

upon  the  payment  of  the  debt  secured.  2,  p.  490;  and  for  observations  upon 

It  contains  covenants  that  the  mort-  such  mortgages,  see  same,   pp.  122- 

gagor  will  keep  up  the  assurance  and  136. 

will  pay  the  premiums,  and  provides         »  Merrill   v.  N.  E.  Mut.  Life   Ins. 

that  if  the  mortgagor  fails  to  do  so,  Co.  103  Mass.  245. 
the  mortgagee  may  advance  the  mon- 

106 


PLEDGES   OF   INSURANCE   POLICIES.  [§  146. 

in  pledge,  the  pledgee  having  been  appointed  ancillary  adminis- 
trator in  Massachusetts,  where  the  insurance  company  was  in- 
corporated, may  maintain  a  suit  there  upon  the  policy,  the  pen- 
dency of  the  suit  by  the  general  administrator  being  no  bar  ; 
for  the  pledgee  having  the  equitable  interest  and  immediate  pos- 
session of  the  policy,  is  entitled  to  its  control  and  collection  in 
preference  to  the  principal  administrator  of  the  estate. ^ 

If  the  assignment  of  a  life  policy  be  made  by  an  instrument 
which  is  in  form  and  substance  a  mortgage,  the  transaction  will 
be  a  mortgage  and  not  a  pledge  of  the  policy.^ 

A  creditor  who  takes  a  policy  of  insurance  upon  his  debtor's 
life  as  collateral  security,  and  charges  the  premiums  for  a  term 
of  years  as  a  part  of  the  principal  of  the  loan,  is  bound  to  keep 
the  policies  alive  ;  and  if  he  fails  to  do  so,  he  is  either  regarded 
as  making  himself  the  insurer,  or  he  is  made  liable  for  negli- 
gence in  not  keeping  the  insurance  in  force.^ 

146.  A  policy  of  life  insurance  payable  to  a  married, 
woman  may  be  pledged  by  a  delivery  of  it  with  an  indorse- 
ment of  it  by  her  in  blank  which  her  husband  has  filled  up  by 
an  assignment.  By  indorsing  the  policy  and  delivering  it  to 
her  husband,  she  clothes  him  with  all  necessary  evidence  of  a 
power  to  pledge  the  instrument,  and  she  cannot  afterwards  claim 
that  her  husband  had  no  authority  to  assign  it.  "  Such  assign- 
ments are  of  daily  occurrence  in  the  way  of  collateral  security; 
and  where  a  policy  is  made  payable  to  the  wife,  and  she  indorses 
it  in  blank,  and  the  husband  pledges  it,  we  are  wholly  at  a  loss 
to  conceive  on  what  ground  it  can  be  claimed  that  such  an  as- 

1  Merrill  v.  N.  E.  Mut.  Life  Ins.  Co.  in  banks  or  other  corporations.  They 
103  Mass.  215.  are  not   ordinary  articles  of  sale  in 

2  Durgan  y.  Mut.  Benefit  L.  Ins.  Co.  market  overt  or  at  the  stock  boards. 
38  ^Id.  242,  253.  In  this  case,  Miller,  The  power  of  sale  incident  to  a  pledge 
J.,  delivering  the  opinion  of  the  court,  could  not  be  readily  exercised,  if  at 
thought  there  was  reason  to  regard  all,  in  case  of  default,  and  hence  no 
the  transfer  as  a  mortgage  rather  than  one  would  be  inclined  to  accept  them 
a  pledge,  not  only  by  reason  of  the  as  securities  for  loans  and  advances 
form  of  the  transfer,  but  also  from  with  no  more  interest  or  title  in,  or 
consideration  of  the  sul»ject  matter  of  control  over  them,  than  that  which  the 
the  transfer.     "Continuing  life   poll-  law  of  baihnents  confers." 

cies,  if  they  have  any,  have  not  the  »  Soule  v.  Union  Bank,  45  Barb, 
same  easily  ascertained  market  value  (X.  Y.)  Ill  ;  S.  C.  30  How.  Pr.  105. 
as  personal  chattels  or  shares  of  stock 

107 


§  147.]         PLEDGES   OF  NON-NEGOTIABLE   CHOSES   IN   ACTION. 

sio-nment  is  not  valid  in  a  court  of  equity.  Tlie  husband  and 
the  wife  are  the  only  parties  interested,  and  they  have  4)oth  par- 
ticipated in  the  assignment.  The  law  provides  no  particular 
mode  by  which  the  wife  is  to  manifest  her  consent,  as  in  the  case 
of  a  conveyance  of  lands  ;  and  if  such  an  assignment  as  was  made 
in  the  present  case  is  not  valid,  then  a  policy  payable  to  a  mar- 
ried woman  is  not  assignable  at  all.  .  .  .  She  gave  to  the  public 
the  evidence  of  her  consent  by  indorsing  the  policy  in  blank,  — 
an  act  which  could  be  interpreted  as  done  for  no  other  purpose 
than  an  assignment ;  and  the  same  consequences  must  be  at- 
tached to  this  act  against  her  as  would  follow  from  such  an  act 
performed  by  any  other  person.  When  innocent  parties  have 
advanced  money  to  her  husband  on  the  faith  of  such  blank  as- 
signment, she  cannot  be  permitted  to  repudiate  the  transaction. 
She  cannot  be  permitted  to  enable  her  husband  to  perpetrate  a 
fraud."! 

147.  A  policy  of  insurance  may  be  effectually  pledged 
by  delivery  without  a  formal  assignment.  Thus  when  the 
directors  of  a  manufacturing  corporation  placed  the  company's 
fire  insui'ance  policies  in  the  hands  of  two  directors  without  any 
formal  assignment,  to  secure  loans  made  and  to  be  made  by  such 
directors  and  others  to  the  corporation,  it  was  held  there  was  a 
sufficient  delivery  of  the  policies  to  sustain  the  pledge. ^  Judge 
Treat,  in  delivering  the  judgment  in  this  case,  said  :  "  It  is  a 
matter  of  daily  occurrence  that  creditors  require  their  debtors  to 
insure  their  property  and  assign  or  pledge  the  same  as  security. 
They  are  not  willing  to  trust  the  event  of  the  debtor's  solvency 
if  his  property  is  destroyed  by  fire,  and  hence  exact  such  security 
in  addition  to  his  personal  liability.  In  the  absence  of  such  an 
arrangement  the  creditor  may  well  be  supposed  to  rely  upon  his 
debtor's  ability  to  meet  his  liabilities,  irrespective  of  the  contin- 
gency by  fire.  The  debtor  was  not  bound  to  insure,  and  if  he 
did  not,  the  ci'editor  had  no  recourse  except  upon  his  remaining 
assets.  If  he  did  insure,  and  the  proceeds  thereof  became  a  part 
of  his  general  estate,  they  became  subject  to  the  demands  of  his 
creditors,  equally  with  other  assets.  But  if  the  insurance  was 
made,  not  for  the  general  benefit,  but  solely  or  primarily  for  the 

1  Norwood  V.  Guerdon,  60  111.  253,  2  gtout  v.  Yaeger  Milling  Co.  (Mo. 
257,  per  Lawrence,  C.  J.  1882)  13  Fed.  Rep.  802. 

108 


PLEDGES   OF   SAVINGS   BANK   BOOKS.  [§  148. 

security  of  a  specified  class  of  creditors,  by  agreement  with  them, 
why  should  not  the  transaction  be  upheld ;  and  by  what  legal  or 
equitable  right  could  the  unsecured  creditors  claim  that  they 
should  share  in  such  securities  ?  The  question,  however,  in  this 
case  is  as  to  the  pledge  of  the  policies  and  their  renewals  for  the 
purposes  alleged.  There  was  no  formal  assignment,  and  no  con- 
sent of  the  insurance  companies  to  such  assignments.  .  .  .  When 
the  fire  occurred  and  the  amount  of  losses  was  collected,  the 
sums  so  collected  would  necessarily  have  to  be  paid  over  to  the 
pledgees,  to  the  amount  of  their  demands  secured.  The  fact 
that  the  creditors  were  directors,  and  the  company,  pledgor,  and 
directors  were  the  trustees  for  the  benefit  of  said  creditors,  can- 
not aUect  the  good  faith  of  the  transaction,  if  the  agreement  to 
pledge  existed  at  the  time  of  the  advances,  and  the  creditors 
were  within  the  terms  of  the  pledge.  Other  or  general  cred- 
itors who  had  not  taken  such  securities  have  no  ground  of  com- 
plaint. There  was  no  preference  within  the  admitted  rule,  but 
merely  an  enforcement  of  securities." 

The  deposit  of  a  policy  of  insurance  with  a  creditor  of  the 
assured,  as  collateral  security,  gives  the  creditor  a  lien  on  the 
proceeds  of  the  policy,  which  is  binding  upon  the  underwriters 
and  upon  the  assured,  and  upon  all  persons  who  take  an  interest 
from  the  assured  with  notice  of  such  lien.^  Even  a  clause  in  the 
policy  which  prohibits  a  transfer  of  it  without  the  consent  in 
writing  of  the  insurers  does  not  apply  to  a  deposit  of  the  policy 
by  way  of  pledge.  The  interest  of  the  insurers  cannot  be  af- 
fected by  any  transfer  which  does  not  also  transfer  the  title  to, 
and  a  control  over,  the  property  assured  ;  and  therefore  such  re- 
strictions have  not  been  understood  to  apply  to  assignments  in 
which  the  underwriters  can  have  no  interest,  and  to  control 
which  they  can  have  no  motive.^ 

IV.  Pledijes  of  Savings  Bank  Boohs. 

148.  The  delivery  of  a  savings  bank  book  as  collateral 
security  for  a  debt,  althougli  unaccompanied  by  a  written  as- 
signment, transfers  an  equitable  title  to  the  deposit  represented 
by  the  book,  which  will  prevail  against  a  creditor  subsequently 

^  Gorlin  V.  London  Ins.  Co.  1   IJiirr.         ^  Ellis  v.  Kreutzinger,  27  Mo.  311. 
48D,  4'J4  ;  Wells  v.  Archer,  10  S.  &  K. 
(Pa.)  412.  109 


§  149.]         PLEDGES   OF   NON-NEGOTIABLE   CHOSES  IN   ACTION. 

attaching  the  deposit.^  "  A  savings  bank  book  has  a  peculiar 
character.  It  is  not  a  mere  pass-book,  or  the  statement  of  an 
account ;  it  is  issued  to  the  person  in  whose  name  the  deposit  is 
made,  and  with  whom  the  bank  has  made  its  contract ;  it  is  his 
voucher,  and  the  only  security  he  has,  as  evidence  of  his  debt. 
The  bank  is  not  obliged  to  pay  the  depositor  the  money  in  its 
hands  except  upon  presentation  of  the  book  ;  and  if  in  good  faith 
and  without  notice  it  pays  the  money  deposited  to  the  person 
who  presents  the  book,  although  the  book  has  been  obtained 
fraudulently  by  him,  the  bank  is  not  liable  to  the  real  depositor. 

"  The  book  is  the  instrument  by  which  alone  the  money  can  be 
obtained,  and  its  possession  is  thus  some  evidence  of  title  in  the 
person  presenting  it  at  the  bank.  It  is  in  the  nature  of  a  secu- 
rity for  the  payment  of  money  ;  it  discloses  the  existence  and 
amount  of  the  fund  to  the  person  receiving  it,  and  affords  him 
the  means  of  obtaining  possession  of  the  same."  ^ 

The  delivery  of  a  savings  bank  book  by  a  debtor  to  a  third 
person  for  delivery  to  his  creditor  as  security  for  a  debt,  creates 
a  valid  pledge  of  the  book  and  of  the  deposit  represented  by  it.^ 

An  heir  cannot  make  an  effectual  pledge  of  a  savings  bank 
book  or  of  the  deposit,  as  against  the  administrator  of  the  de- 
positor's estate.* 

V.  Pledges  of  Judgments. 

149.  An  assignment  of  a  sum  due  on  a  judgment,  stipulat- 
ing that  when  collected  it  shall  be  applied  on  a  bond  and  mort- 
gage held  by  the  assignee  against  the  assignor,  with  a  covenant 
by  the  latter  not  to  collect  it,  is  on  its  face  an  assignment  as  col- 
lateral security,  and  parol  evidence  to  show  this  is  not  required.^ 

A  claim  in  suit  may  be  pledged  by  the  owner  of  it,  but  the 
evidence  of  the  debt  should  be  delivered  to  the  pledgee,  who 
should  prosecute  the  action,  though  he  may  be  obliged  to  do  this 
in  the  pledgor's  name.^ 

1  Taft  V.  Bowker,  132  Mass.  277;  8  R.  I.  536;  Camp's  Appeal,  36  Conn. 

Boynton  v.  Payrow,  67  Me.  587.  88;  Penfield  v.  Thayer,  2  E.  D.  Smith, 

^  Per  Endicott,  J.,  in  Pierce  v.  Bos-  305. 

ton  Sav.  Bank,  129  Mass.  425,  432,  »  Boynton  v.  Payrow,  supra.  • 

where  it  was  held  that  a  delivery  of  a  *  Boynton  u.  Payrow,  supra. 

savings  bank  book  makes  a  valid  gift  ^  Mulford    v.    MuUer,    3    Abb.   (N. 

mortis  causa.  It  also  constitutes  a  good  Y.)  Dec.  330  ;  S.  C.  1  Keyes,  29. 

gift   inter   vivos.     Hill   v.  Stevenson,  ^  Hiligsberg's    Succession,    1    La. 

63  Me.  364;  Tillinghast  ff.  Wheaton,  Ann.  340. 

110 


PLEDGES   OF   LAND   CERTIFICATES.  [§  150. 

VI.  Pledges  of  Land  Certificates. 

150.  Land  certificates  issued  by  a  state,  such  as  certificates 
of  school  lands  in  the  State  of  Wisconsin,  though  by  statute  made 
transferable  by  written  assignment  are  not  a  proper  subject  of 
pledge.  1  If  such  certificates  be  deposited  by  a  debtor  with  his 
creditor  as  security  for  a  note,  which  provides  that  the  creditor 
may  sell  them  on  the  non-payment  of  the  note,  the  debtor's  in- 
terest in  the  land  and  certificates  cannot  be  extinguished  or  con- 
verted by  a  sale  as  in  the  case  of  a  pledge  of  goods.  A  deposit 
of  them  under  such  an  agreement  is  not  a  pledge  of  personal 
property,  but  an  equitable  mortgage  of  the  debtor's  interest  in 
the  lands ;  and  the  only  mode  in  which  the  creditor  can  enforce 
the  security  is  by  a  suit  in  equity  for  the  purpose.^  Therefore 
in  case  such  certificates  be  deposited  as  collateral  security  with  a 
power  to  sell  them  upon  default,  a  sale  under  the  power  is  inef- 
fectual. 

Moreover  as  such  certificates  are  not  negotiable  instruments, 
and  the  indorsement  thereof  is  not  conclusive  evidence  of  the 
holder's  ownership,  an  agent  cannot  effectually  pledge  them  un- 
less he  has  express  authority  to  make  such  pledge ;  therefore,  if 
such  certificates  have  been  placed  in  his  hands  to  sell,  and  he 
pledges  them  to  secure  his  own  debts,  his  pledgee  acquires  no 
title  to  them  as  against  the  real  owner.  A  general  agent  has  no 
authority  to  pledge  his  principal's  property,  unless  this  be  in  the 
form  of  negotiable  securities  standing  absolutely  in  his  own  name, 
as  security  for  his  own  debts ;  and  though  the  agent  be  clothed 
with  the  insignia  of  title,  any  one  taking  such  certificates  in  pledge 
is  bound  to  inquire  as  to  the  agent's  authority.^         '' 

1  Whitney  v.  State  Bank,  7  Wis.  effect  overruling  Ainsworth  v.  Bowen, 
6-20;    Smith  v.  Mariner,  5  Wis.  551.     9  Wis.  348. 

See  Jones  on  Mortgages,  §  176.  »  Whitney  v.  State  Bank,  supra. 

2  Mowry  v.  Wood,  12  Wis.  413  ;  in 

111 


CHAPTER  V. 


PLEDGES  OE  CORPOKATE  STOCKS. 


I.  Corporate  stocks    a  proper  subject  of 

pledge,  151-154. 
II.  Parol    evidence  to    show  an    absolute 

transfer  to  be  a  pledge,  155-157. 

III.  What  constitutes  an  effectual  transfer 

of  stock  at  common  law,  158-162. 

IV.  Transfers  in  blank,  163-167. 


V.  Transfer  by  delivery  of  certificate  as 

between  the  parties,  168-171. 

VI.  Such  transfers  as  between  the  parties 

and  the  corporation,  172-176. 
VII.  Such  transfers  as  between  the  parties 
and  their  creditors,  177-220. 
VIII.  Liens  upon  stock  in  favor  of  the  cor- 
poration, 221-226. 


I.    Corporate  Stocks  a  Proper  Subject  of  Pledge. 

151.  Whether  stock  of  a  corporation  can  be  the  subject  of 
a  pledge  was  formerly  doubted,  for  the  reason  that,  in  order  to 
constitute  a  pledge,  possession  must  be  given  of  the  thing  pledged, 
and  possession  of  shares  in  a  corporation  cannot  be  transferred 
except  by  a  written  transfer,  which  apparently  passes  the  legal 
title  and  general  property  in  the  stock,  which  are  the  character- 
istics of  a  mortgage,  and  not  merely  a  special  property,  which  is 
the  characteristic  of  a  pledge.  A  delivery  of  a  certificate  merely 
does  not  transfer  the  stock,  but  a  written  transfer  is  necessary. 
Yet  a  transfer  of  stock  as  collateral  security  is  now  generally 
regarded  as  a  pledge  rather  than  a  mortgage,  because  this  view 
is  considered  to  be  more  in  accordance  with  the  intention  of  the 
parties.^ 


152.  A  written  transfer  of  some  kind,  which  shall  pass  the 
legal  title  is  essential  in  a  pledge  of  stock,  thotigh  this  trans- 

1  Newton  v.  Fay,  10  Allen  (Mass.),  &   Banking   Co.    v.    Fisher,   9    N.   J. 

505,  507,  per  Chapman,  J.;  Wilson  u.  Eq.   667;   Morris    Canal   &   Banking 

Little,  2  N.   Y.  443;  S.  C.  1   Sandf.  Co.  w.  Lewis,   12  lb.  323;  Mechanics' 

351;  Allen  V.  Dykers,  3  Hill  (N.  Y.),  Building    &    Loan    Ass.    v.    Conover, 

593;  5.  C.  7  lb.  497;  Vaupell  v.  Wood-  14  N.  J.  Eq.  219;  Murdock  v.  Colum- 

ward,  2  Sandf.  (N.  Y.)  Ch.  143;  White  bus  Ins.  Co.  59  Miss.  152,  per  Camp- 

V.  Piatt,  5  Denio  (N.  Y.),  269;  Gilpin  bell,  J. 
V.  Howell,  5  Pa.  St.  41;  Morris  Canal 
112 


CORPORATE   STOCKS   A   PROPER   SUBJECT    OF   PLEDGE.      [§  153. 

fer  may  be  informal,  such  as  a  blank  indorsement  of  the  certifi- 
cate, or  a  power  of  attorney  signed  in  blank.  There  must  be 
a  transfer  on  the  books  of  the  company,  or  a  power  of  attorney 
authorizing  a  transfer,  or  some  assignment  or  contract  in  writing 
by  which  the  holder  may  assert  title,  and  compel  a  transfer  when 
desired.^  A  delivery  of  the  thing  pledged  is  necessary  to  con- 
stitute a  pledge ;  and  a  delivery  of  a  certificate  of  stock  without 
a  transfer  or  a  writing  which  will  enable  the  holder  to  make  a 
transfer  of  the  stock  to  his  own  name,  is  not  a  complete  delivery; 
it  does  not  place  the  stock  in  the  full  control  of  the  pledgee. 

Where  two  members  of  a  banking  firm  were  also  president  and 
cashier  of  a  bank  and  trust  company,  and  the  firm  being  indebted 
to  the  company,  they  agreed  with  the  directors  of  the  company 
to  deposit  certificates  of  stock  to  secure  such  indebtedness,  and 
accordingly^  certificates  standing  in  the  firm's  name,  not  indorsed 
or  accompanied  by  any  power  to  transfer,  were  deposited  with 
the  cashier,  and  it  appeared  that  the  firm  retained  and  exercised 
the  right  to  withdraw  such  certificates  and  substitute  others, 
without  consulting  the  directors  of  the  bank ;  it  was  held  that 
there  was  no  such  delivery  of  the  stock  as  would  constitute  a 
pledge  of  it,  because  the  firm  had  full  control  of  it  and  could 
transfer  it  without  consulting  the  bank,  and  the  bank,  not  hold- 
ing any  transfer  of  the  stock,  could  not  control  it  without  the 
consent  of  the  firm,  and  the  execution  by  them  of  a  power  of 
transfer.^ 

153.  A  transfer  of  the  legal  title  is  not  inconsistent  with 
the  existence  of  a  pledge.^  On  the  contrary,  it  is  true  that  in- 
corporeal property,  being  incapable  of  manual  delivery,  cannot 
generally  be  pledged  without  a  written  transfer  of  the  title. 
Collateral  securities,  such  as  negotiable  instruments,  stocks  in 
incorporated  companies,  and  choses  in  action  generally,  are 
pledged  in  this  mode.  "  Such  transfer  of  the  title  performs  the 
same  offi.ce  that  the  delivery  of  possession  does  in  case  of  a  pledge 
of  corporeal  property.     The  transfer  of  the  title,  like  the  delivery 

1  Nisbit  V.  Macon  Bank  &  Trust  Co.  bach,  10  Pac.  Coast  L.  J.  123;  Sigour- 
12  Fed.  Rep.  686,  per  Pardee,  J.  ney  r.  Zellerbach,  55  Cal.  431. 

2  Kisbit  V.  Macon  Bank  &  Trust  ^  Wilson  v.  Little,  2  N.  Y.  443; 
Co.  supra.     See,  also.  Cross  v.  Zeller-  overruling   Huntington    v.   Mather,  2 

Barb.  538. 
8  113 


§  154.]  PLEDGES   OF   CORPORATE   STOCKS. 

of  possession,  constitutes  the  evidence  of  the  pledgee's  right  of 
property  in  the  thing  pledged."  ^  In  such  case,  although  the 
pledgee  receives  the  apparent  legal  title,  the  general  property  in 
the  security  remains  in  the  pledgor.^  Whenever  it  appears  by 
the  terms  of  the  contract  that  the  debtor  has  a  legal  right  to  the 
restoration  of  the  security,  on  payment  of  the  debt,  he  may  be 
said  to  have  the  general  property  in  it.  This  general  property 
is  nothing  more  than  a  legal  right  to  the  restoration  of  the  thing 
pledged  on  payment  of  the  debt.^  Thus,  an  absolute  transfer 
of  stock  in  a  corporation  as  collateral  security  for  the  payment 
of  a  note,  which  states  that  the  stock  was  so  deposited,  is  a 
pledge  and  not  a  mortgage ;  for,  by  a  fair  construction  of  the 
transfer  and  note,  taken  together,  the  general  property  in  the 
stock  remains  in  the  pledgor.*  Such  was  also  held  to  be  the 
effect  of  a  transfer  by  a  corporation  of  its  own  stock  as  security 
for  a  debt,  upon  an  agreement  that  the  stock  should  be  trans- 
ferred back  upon  payment  of  the  debt.^  In  general,  it  may  be 
said  that  any  transfer  as  collateral  security  of  shares  in  a  cor- 
poration, made  in  the  ordinary  form  of  an  indorsement  of  a  cer- 
tificate, or  by  delivery  of  it  with  a  power  of  attorney  to  make  a 
transfer  upon  the  books  of  the  corporation,  or  by  an  actual  trans- 
fer upon  the  books,  is  a  pledge  and  not  a  mortgage ;  and  it  is 
immaterial  in  this  respect  whether  such  transfer  appear  to  be 
absolute,  or  is  expressed  to  be  made  as  security  ;  though  a  trans- 
fer made  in  the  usual  form  of  a  mortgage,  with  a  defeasance, 
would  doubtless  be  regarded  as  a  mortgage.^ 

154.    But  if  the   original  contract  was  not  in  substance 
and  in  fact  a  security  for  a  loan,  but  an  option  to  resell,  it 

1  Brewster  v.  Hartley,  37  Cal.  15,  ^  Brewster  v.  Hartley,  37  Cal.  15. 

25,  per  Rhodes,  J.  <>  Hasbrouck     v.     Vandervooi't,     4 

~  Garlick  v.  James,  12  Johns.   (N.  Sandf.  (N.  Y.)  74;  Nabring  v.  Bank 

Y.)     146;     Evans    v.    Darlington,    5  of  Mobile,  58  Ala.  204;    Brewster  v. 

Blackf.  (ind.)  320.  Hartley,  37  Cal.  15;  Dungan  v.  Mut. 

8  Wilson  t'.  Little,  2  N.  Y. 443,  448,  Benefit  L.  Ins.  Co.  38  Md.  242;  Ede 

per  Riiggles,  J.  v.   Johnson,    15     Cal.    53 ;     Smith    t'. 

*  Wilson    V.    Little,    supra;    Has-  Quartz  Mining  Co.  14  Cal.  242. 

brouck  I'.  Vandervoort,  4  Sandf.  (N.  A  few  early  cases  to  the  contrary 

Y.)  74,  78;  Lewis  v.  Graham,  4  Abb.  are  not  to  be  regarded;  as  Huntington 

(N.  Y.)  Pr.  106;  Mechanics'  Building  v.  Mather,  2  Barb.  (N.  Y.)  538. 
&  Loan  Ass.  v.  Conover,  14  N.  J.  Eq. 
219. 

•       114 


ABSOLUTE   TRANSFER   SHOWN   TO   BE   A   PLEDGE.  [§  155. 

cannot  be  held  to  be  a  pledge.  Thus,  if  a  contract  with  an  in- 
surance company  be  to  subscribe  for  certain  shares  of  its  stock, 
and  to  pay  therefor  in  certain  instalments,  the  company  giving 
the  subscriber  the  option  to  resell  the  stock  to  it  within  a  given 
time,  the  transaction  is  an  actual  subscription  for  stock,  and  not 
a  loan  upon  the  stock  as  collateral  security.  The  option  is  a 
right  secured  by  contract,  and  a  right  in  addition  to  the  absolute 
title  to  the  stock  taken  by  the  subscriber.  The  latter  cannot, 
therefore,  after  taking  the  stock  and  paying  certain  instalments, 
surrender  the  stock  to  the  company,  and  reclaim  the  payments 
made  thereon,  thus  avoiding  responsibility  as  a  stockholder  to 
the  detriment  of  the  other  stockholders  of  the  company  and  of 
its  creditors.^ 

And  so  a  customer  of  a  bank  having  overdrawn  his  account, 
and  having  transferred  stock  at  a  fair  price  "  in  payment "  of  the 
debt,  "  subject  to  his  right  of  redemption  in  two  years,"  it  was 
held  that  the  transaction  was  neither  a  pledge  nor  a  mortgage, 
but  a  sale  of  the  stock  in  discharge  of  the  debt.  The  over-draft 
was  not  a  loan,  and  the  stock  was  not  transferred  as  security  ; 
and  so  the  transaction  did  not  come  within  the  rule  which  pre- 
vents the  conversion  of  a  security  for  a  loan  into  a  sale.  After 
the  expiration  of  the  two  years  the  title  of  the  bank  to  the  stock 
was  absolute.2 

II.  Parol  Evidence  to  show  an  Absolute  Transfer  to  he  a  Pledge. 

155.  An  absolute  transfer  of  stock  may  be  shown  by  parol 
evidence  to  be  really  a  pledge  of  it  as  collateral  security  for  a 
debt.3  Perhaps  an  informal  transfer  not  under  seal  might  be 
shown  by  parol  evidence  to  have  been  so  intended,  even  in  an 
action  at  law,  just  as  a  bill  of  parcels,  as  distinguished  from  a 
formal  bill  of  sale  under  seal,  may  be  shown  in  an  action  at  law 
to  have  been  intended  only  as  collateral  security.*  But  however 
this  may  be,  it  is  a  settled  rule  in  equity  that  oral  proof  as  to 
the  consideration  and  purpose  of  an  absolute  transfer  of  stock  is 

*  Melvin  v.  Lamar  Ins.   Co.  80  111.  hon  v.  Macy,  51  N.  Y.  1.'55;  Burgess 

44C-  V.   Seli^riiian  (U.  S.   Sup.  Ct.  Jan.  '20, 

2  Lauman's  Appeal,  68  Pa.  St.  88.  188.']),  2  Sup.  Ct.  lie]).  10. 

»  Brick   V.   Brick,    98    U.    S.    .014;  *  Newton  v.  Fay,  10  Allen  (Mass.), 

Ginz  i;.  Stumph,  73  Ind.  209;  McAIa-  505.     See  §16. 

115 


§  156.]  PLEDGES   OF   CORPORATE   STOCKS. 

admissible.^  The  rule  which  excludes  such  evidence  to  contra- 
dict or  vary  a  written  instrument  has  reference  to  the  language 
of  the  parties  ;  it  does  not  forbid  an  inquiry  into  the  object  of 
the  parties  in  executing  and  receiving  the  instrument.  For  this 
purpose  a  court  of  equity  will  look  beyond  the  terms  of  the  in- 
strument to  the  real  transaction.^  Consequently,  upon  proof 
that  an  absolute  transfer  was  intended  only  as  collateral  security, 
a  bill  in  equity  may  be  maintained  to  redeem  the  stock.^  But, 
while  this  rule  of  equity  protects  a  debtor  from  loss  in  conse- 
quence of  an  apparent  sale  which  was  really  only  a  transfer  to 
secure  a  loan,  it  will  not  be  applied  to  defeat  an  absolute  or  con- 
ditional sale  of  stock  when  the  transaction  is  clearly  established 
to  be  of  that  character.* 

A  statute  requiring  the  collateral  character  of  a  transfer  of 
stock  to  be  expressed  in  the  transfer  itself,  or  in  the  certificate 
issued  to  the  holder  of  such  stock,  does  not  exclude  other  evi- 
dence that  the  transfer  was  intended  merely  as  collateral  secu- 
rity.^ The  purpose  of  such  a  provision  is  to  enable  the  pledgee 
to  hold  the  security  without  being  liable  for  the  debts  of  the 
corporation  or  to  taxation  for  the  property. 

Though  the  by-laws  of  a  corporation  or  the  rules  of  an  associa- 
tion require  all  transfers  to  be  made  absolute  in  terms,  a  transfer 
so  made  may  be  shown  by  parol  evidence  to  have  been  made  as 
collateral  security.^ 

156.  A  sale  of  stock  accompanied  by  an  agreement  on  the 
part  of  the  vendor  to  repurchase  the  same  within  a  specified 
time,  differs  very  little  from  a  loan  of  money  upon  a  pledge  of 
the  property  as  collateral  security.  If  stock  of  a  corporation  be 
sold  upon  such  an  agreement  to  repurchase  within  a  year  upon 
the  written  request  of  the  vendee,  his  option  to  regard  the  stock 

1  ]S"ewton  V.  Fay,  10  Allen  (Mass.),  the  same  should  become  due  ;  but  it 
505;  Stamford  Bank  v.  Ferris,  17  was  held  that  the  lender  did  not  get 
Conn.  259.  an   absolute  title  to  the  stock  by  mere 

2  Brick  V.  Brick,  98  U.  S.  514,  per  default  in  the  payment  of  the  debt. 
Field,  J.  It  would  be  immaterial  in  this  respect 

8  Smith  V.  Quartz    Mining   Co.   U  whether  the  instrument   be  regarded 

Cal.  242.     In  this  case  the  instrument  as  a  mortgage  or  a  pledge, 

of  transfer  contained  a  provision  that  *  Laumau's  Appeal,  68  Pa.  St.  88. 

the  sale  should  be  absolute  if  the  bor-  ^  Newton  n.  Fay,  sujva. 

rower  failed  to  repay  the  loan  when  *  Ginz  v.  Stumph,  73  Ind.  209. 
116 


EFFECTUAL   TRANSFER   AT   COMMON   LAW.      [§§  157,  158. 

merely  as  collateral  security  for  a  loan  is  sufficiently  exercised 
by  causing  a  written  notice  that  he  requested  the  vendor  to  buy 
back  the  shares  according  to  the  terms  of  the  agreement,  to  be 
left  at  the  vendor's  house  before  the  end  of  the  year.  In  a  suit 
upon  such  agreement,  after  the  end  of  the  year,  it  is  sufficient  to 
entitle  the  plaintiff  to  recover,  that,  from  the  time  of  giving  such 
notice,  he  had  the  shares  in  his  control  and  possession,  and  was 
ready  to  transfer  them  before  taking  judgment.^ 

157.  Parol  evidence  is  not  admissible  to  contradict  the 
contract  of  pledge  such  as  a  statement  in  a  promissory  note 
that  certain  stock  had  been  transferred  as  collateral  security.  It 
cannot  be  shown  that  the  note  was  a  mere  memorandum  ;  and 
that  it  was  agreed  between  the  parties  to  it  that  the  stock  de- 
scribed as  collateral  security  should  operate  as  payment  of  the 
note  at  its  maturity,  if  it  were  not  previously  paid.^  The  rule 
that  oral  evidence  cannot  be  admitted  to  alter  a  written  contract 
is  applicable  and  must  prevail. 

III.    What  constitutes  an  Effectual  Transfer  of  Stock  at  Com- 
mon Laiv. 

158.  What  constitutes  an  effectual  transfer  of  stock  is  one 
of  the  first  questions  that  concerns  one  who  is  taking  it  as  secu- 
rity. May  he  safely  hold  a  certificate  issued  to  his  debtor  with 
a  transfer  indorsed  upon  it,  or  accompanied  by  a  power  of  attor- 
ney authorizing  a  transfer  upon  the  company's  books  ;  or  is  it 
essential  that  the  shares  be  actually  transferred  upon  the  books 
before  the  security  is  complete  ?  By  general  statute,  or  by  pro- 
vision of  charter,  or  by-law  of  business  corporations,  it  is  gener- 
ally declared  in  some  form  that  stock  is  transferable  only  on  the 
books  of  the  company.  While  it  is  generally  conceded  that  un- 
der such  a  provision  a  valid  transfer  of  stock  may  be  made  as 
between  the  parties  themselves,  by  merely  delivering  a  certificate 
properly  indorsed,  or  accompanied  by  a  power  of  attorney,  au- 
thorizing a  transfer  u[)on  tiie  company's  books,  there  is  a  wide 
difference  of  opinion  as  to  the  effect  of  such  a  transfer  as  against 
the  assignor's  creditors. 

^  Doynton  v.  Woodbury,  101  Mass.  *  Perry  v.  Bi;,a'low,  128  Mass.  Vl'i. 
31G. 

117 


§§  159,  160.]  PLEDGES   OF   CORPORATE   STOCKS. 

159.  In  the  absence  of  legislative  regulation  transfers  of 
stock  are  governed  by  the  general  principles  of  the  common 
law.  Shares  of  stock  are  the  private  property  of  the  owner,  and 
he  may  sell  them  or  transfer  them  as  security  in  any  way  he 
chooses,  provided  he  makes  such  a  delivery  of  them  as  the  com- 
mon law  requires.!  The  by-laws  of  the  corporation  may  provide 
that  all  transfers  shall  be  made  upon  its  books,  and  shall  not  be 
complete,  or  shall  not  pass  the  title  until  so  made ;  but  they  do 
not  control  the  legal  effect  of  an  assignment  and  delivery  of  the 
certificate  by  the  owner.  The  legal  effect  of  the  owner's  assign- 
ment may  be  controlled  by  legislative  enactment ;  for  the  legis- 
lature has  the  right  to  declare  Avhat  forms  shall  be  observed  in 
the  transfer  of  property.  But  in  the  absence  of  any  legislative 
regulation,  either  by  general  law  or  by  special  charter,  the  mode 
of  transferring  stock  should  be  determined  by  general  principles 
of  law  based  upon  sound  reason  and  public  policy.  "  The  right 
to  dispose  and  transfer  the  title  being  a  recognized  and  universal 
incident  to  ownership  of  property,  the  exercise  of  that  right 
should  not  be  trammelled  by  any  restrictions  except  such  as  grow 
out  of  the  nature  of  the  property  or  the  demand  of  a  sound 
policy."  2 

160.  Statutes  of  doubtful  meaning  relating  to  transfers  of 

^   Cornick     v.     Richards,     3     Lea  to  pay  what  it  calls  for,   receiving  a 

(Tenn.),  1  ;  Board  of  Commissioners  certificate  of  the  fact  of  such  purchase 

V.  Reynolds,  44  Ind.  509  ;  S.   C.   13  and  ownership  from  the  corporation. 

Am.  L.  Reg.  N.  S.  376,  380.  When  the  stock  is  so  purchased,  how- 

2  Cornick   v.   Richards,   supra,  per  ever,  as  we  have  seen,  it  is  his  private 

Freeman,  J.  individual  property,  and  he  may  sell 

The  learned  judge  continuing,  said:  it  as  such  or  assign  it  with  or  without 
"  The  books  are  not  public  records  in  a  consideration,  and  no  one  can  object, 
any  proper  sense  of  our  law.  Why  creditors  and  innocent  purchasers  un- 
one  private  individual  should  be  re-  der  other  rules  of  law  not  being  af- 
quired  to  effectuate  the  sale  of  the  fected,  for  reasons  of  public  policy,  in 
property  of  another  in  which  he  has  case  the  transfer  is  voluntary  without 
no  title  or  interest  as  property  by  en-  value  paid  for  it.  It  would  seem  to 
tering  the  fact  dn  his  books,  it  is  not  follow  that  whenever  the  title  passed 
easy  to  see,  —  not  even  if  the  fact  be  out  of  the  party  himself  by  a  fair  con- 
that  the  party  selling  had  originally  tract  of  transfer,  no  registration  law 
purchased  the  property  from  him.  being  in  the  case,  and  no  fraud  pur- 
Yet  this  fairly  represents  the  fact  in  posed  as  against  a  creditor  of  the 
the  case  of  stock  in  a  corporation,  party  selling,  that  his  right  as  against 
The  original  owner  purchases  it  from  the  property  ought  to  end." 
the  corporation  by  paying  or  agreeing 

118 


EFFECTUAL  TRANSFER   AT   COMMON   LAW.  [§161. 

stock  in  corporations  will  not  be  construed  to  control  the  recog- 
nized rules  of  the  common  law  in  regard  to  the  mode  of  transfer 
of  such  pi'operty.  Thus  in  a  recent  case  in  Massachusetts  it  was 
contended  that  by  force  of  various  statutes  authorizing  the  attach- 
ment of  shares,  requiring  returns  to  the  secretary  of  the  common- 
wealth, and  imposing  a  personal  liability  on  stockholders  for  the 
debts  of  the  corporation,  there  could  be  no  transfer  of  stock  valid 
against  an  attaching  creditor,  unless  the  transfer  had  been  re- 
corded in  the  books  of  the  corporation ;  that  although  the  stat- 
utes have  not  provided  in  express  terms  that  transfers  shall  not 
be  valid  as  to  creditors  until  they  are  so  recorded,  yet  such  is  the 
necessary  implication,  for  otherwise  the  design  of  the  statutes, 
requiring  registration,  and  making  the  shares  liable  for  debts, 
would  be  defeated.  But  the  court  overruled  this  objection,  say- 
ing :  ^  "  This  consideration  is  not  sufficient  to  control  the  law  as 
long  since  settled  by  the  decisions  of  this  court.  It  requires  a 
clear  provision  of  the  charter  itself,  or  of  some  statute,  to  take 
from  the  owner  of  such  property  the  right  to  transfer  it  in  ac- 
cordance with  known  rules  of  the  common  law ;  and  by  those 
rules  the  delivering  of  a  stock  certificate,  with  a  written  transfer 
of  the  same  to  a  bond  fide  purchaser,  is  a  sufficient  delivery  to 
transfer  the  title  as  against  a  subsequent  attaching  creditor.  It 
would  not  be  in  accordance  with  sound  rules  of  construction  to 
infer,  from  the  provisions  of  several  different  statutes  passed  for 
the  purpose  of  obtaining  information  needed  to  secure  the  taxa- 
tion of  such  property,  or  for  the  purpose  of  subjecting  stockhold- 
ers to  a  liability  for  the  debts  of  a  corporation,  or  for  protecting 
the  corporation  itself  in  its  dealings  with  its  own  stockholders, 
that  the  legislature  intended  thereby  to  take  from  the  stock- 
holder his  power  to  transfer  his  stock  in  any  recognized  and  law- 
ful mode.  If  a  change  in  the  mode  of  transfer  be  desirable,  for  the 
protection  of  creditors,  or  for  any  other  reason,  it  is  for  the  legis- 
lature to  make  it  by  clear  provisions,  enacted  for  that  purpose." 

161.  The  convenience  of  unrestricted  transfers  of  stock  is 
so  great  that  it  may  be  said  that  such  transfers  are  now  a  nc^ces- 
sity.  Transfers  of  stock,  not  only  for  purposes  of  speculation  but 
also  for  the  purposes  of  security,  hav(i  now  become  so  imjiorlant 
an  element  in  tlie  business  transacted  every  day  in  all  th(^  centres 

1  Boston  Music  Hall  Asso.  v.  Cory,  129  Mass.  435,  per  Colt,  J. 

110 


§  161.]  PLEDGES  OF  CORPORATE  STOCKS. 

of  commerce  and  trade  that  it  is  almost  a  matter  of  necessity 
that  the  mere  delivery  of  the  certificate  with  a  power  of  transfer 
should  be  effectual,  not  only  as  between  the  parties  to  the  trans- 
action, but  also  as  against  the  assignor's  creditors.  This  practical 
necessity  for  an  unrestricted  transfer  of  shares  of  stock  has  been 
generally  recognized  by  the  courts,  in  the  absence  of  statutes 
making  a  transfer  upon  the  books  of  the  company  requisite  to  the 
validity  of  the  transfer.  Thus,  in  a  recent  case  in  Louisiana 
the  court  say:^  "There  is  an  immense  amount  of  the  wealth 
of  the  country  invested  in  stocks  of*  the  numberless  corporations, 
which  have  sprung  into  existence  within  a  few  years  past.  These 
stocks  afford  a  most  convenient  and  valuable  basis  of  credit ;  and 
they  are  sold  to  a  large  amount  daily,  at  all  the  great  commercial 
centres.  The  holder  who  does  not  wish  to  sell  may  pledge  his 
certificates  for  loans  and  discounts  to  an  amount  approximating 
their  market  value,  with  a  reasonable  margin  for  possible  depre- 
ciation. The  pledgee  does  not  desire  to  become  the  owner  of  the 
stock ;  and  he  would  not  think  it  necessary,  nor  would  he  have 
the  right  to  surrender  the  pledged  certificates  and  have  the  stock 
transferred  to  him  on  the  books  of  the  corporation.  Nor  do  we 
think  the  validity  of  the  pledge  could  be  made  to  depend  on  the 
giving  of  notice  to  the  corporation,  because  the  corporation  has 
no  power  or  authority  to  dispose  of  the  stock,  or  to  transfer  it, 
so  long  as  the  certificates  are  not  produced  and  surrendered.  If 
the  pledgee  were  required  to  have  the  transfers  made  on  the 
books  of  the  corporation  or  to  give  notice,  the  value  of  these  cer- 
tificates as  a  basis  of  credit  would  be  greatly  impaired,  particu- 
larly where  the  pledge  is  made  at  a  distance  from  the  domicil  of 
the  corporation." 

There  is  a  very  great  convenience,  not  only  to  persons  dealing 
in  stocks,  but  to  merchants  and  bankers  who  have  occasion  to  use 
them  as  collateral,  to  be  able  to  give  or  take  an  indisputable  title 
without  an  actual  transfer  of  the  shares  upon  the  books  of  the 
corporation.^  The  office  of  the  corporation  may  be  far  away 
from  the  place  at  which  the  transaction  is  had  ;  or  the  transaction 
may  be  one  for  a  temporary  purpose,  such  as  a  loan  for  a  few 
days  upon  stock  as  security.  Then,  again,  it  is  customary  with 
all  large  corporations  to  close  the  transfer  books  whenever  divi- 
dends are  declared,  and  to  keep  them  closed,  perhaps,  for  weeks 

1  Smith  V.  Slaughter  House  Co.  30         ^  Cornick     v.     Richards,     3     Lea 
La  Ann.  1378,  1383.  (Tenn.),  1. 

120 


EFFECTUAL    TRANSFER   AT    COMMON   LAW.  [§  162. 

at  a  time  ;  and  consequently,  during  such  periods,  all  transac- 
tions must  necessarily  be  had  without  an  actual  transfer  of  the 
shares. 

The  latest  decisions,  as  well  as  those  having  the  highest  author- 
ity, establish  the  rule,  that  in  the  absence  of  legislative  enactment 
restricting  the  transfer  of  stock  to  a  particular  mode,  a  transfer  is 
complete  on  delivery  of  the  certificate  with  a  power  to  transfer, 
not  only  between  the  parties  themselves,  but  when  the  corpora- 
tion has  unjustifiably  refused  to  make  the  transfer  on  its  books, 
against  a  creditor  of  the  vendor,  who,  without  notice  of  the  trans- 
fer, has  attached  the  stock. ^ 

162.  A  mere  rule  of  a  corporation  not  authorized  by  stat- 
ute cannot  affect  the  rights  of  purchasers  or  pledgees  of 
stock.  Thus  an  unauthorized  by-law  of  a  corporation,  forbidding 
a  transfer  of  stock  when  the  holder  is  indebted  to  the  corporation, 
does  not  relieve  the  corporation  from  the  dutj'^of  making  a  trans- 
fer upon  its  books  upon  the  request  of  one  to  whom  the  certifi- 
cate, accompanied  by  a  power  of  attorney,  has  been  assigned.^ 
"  There  is  no  presumption  in  favor  of  the  right  of  a  corporation 
to  refuse  to  transfer  on  its  books  stock  of  the  company  which  the 
shareholder  has  sold  to  a  bond  fide  purchaser.  The  certificate  rep- 
resents the  property,  and  if  any  secret  lien  upon  the  property 
exists,  such  lien  must  be  shown.  The  burden  is  on  him  who  as- 
serts the  peculiar  privilege  to  prove  it,  as  restrictions  on  the  free 
transfer  of  personal  property  are  not  favored,  especially  as  against 
an  innocent  purchaser  who  has  paid  for  the  certificate.  At  com- 
mon law,  and  independently  of  positive  provisions  of  the  legis- 
lature granting  or  authorizing  the  exercise  of  the  power,  a  cor- 

1  Merchants'  Nat.  Bank  v.  Richards,  tion  gives  express  power  to  the  direc- 

74  Mo.  77;   affirming  ,S'.  C.  6  Mo.  App.  tors  to  make  by-laws  for  the  transfer 

454;  and  cases  cited  in  §§  159-161.  of  its  shares  of  stock;  Mechanics' Bank 

■■^  Carroll     r.     Mullanpliy     Savings  v.  Merchants'  Bank,  45  Mo.  513  ;    or 

Bank,  8  Mo.  App.  '249,2.^2.  where  a  company's   charter  provided 

In  tills  case  the  by-law  under  which  that  its   stock  should  be  transferable 

the  corporation  refused  to   make  the  according  to  such  restrictions  as  the 

transfer  was  one  adopted  by  the  di-  board   of   directors   should   establish, 

rectors,  and  not  one  made  by  the  cor-  subject  to  the  laws  of  the  state;  St. 

poration.     The  by-law  was  considered  Louis  Ins.  Co.  v.  Goodfellow,    9  Mo. 

as  of  no  effect,  because  the  power  to  14'J.      And    see    Spurlock    v.   Pacific 

make  by-laws  ordinarily  resides  solely  K.    K.    Co.    CI    Mo.  32G,    where    the 

ill  the  corporation.    It  would  be  other-  jjower  to  make  by-laws  was  general, 
wise  where  the  charter  of  the  corporar 

liil 


§*163.]  PLEDGES   OF  CORPORATE   STOCKS. 

poration  cannot  pi-ohibit  the  transfer  of  its  shares  on  account  of 
the  indebtedness  of  the  shareholder  to  the  corporation.  Where 
the  stock  is  personal  property,  restrictions  upon  its  transfer  must 
have  their  source  in  legislative  action,  and  the  corporation  itself 
cannot  create  these  impediments."  ^ 

IV.   Transfers  in  Blank. 

163.  By  general  cominercial  usage  a  transfer  of  a  stock  cer- 
tificate may  be  made  in  blank.  An  indorsement  in  blank  of 
the  certificate,  or  a  signing  in  blank  a  power  of  attorney  to  make 
a  transfer  upon  the  company's  books,  authorizes  any  subsequent 
holder  to  fill  up  the  assignment  or  the  power  of  attorney .^  This 
right  to  fill  up  the  blank  is  not  limited  to  the  first  taker  of  the 
instrument,  but  may  be  exercised  by  any  one  into  whose  hands 
the  certificate  may  come  in  this  way.  The  blank  in  the  assign- 
ment or  power  may  be  subsequently  filled  up  by  the  holder  with 
his  own  name,  so  as  to  entitle  him  to  a  transfer  upon  the  books 
of  the  company,  although  the  assignment  or  power  be  executed 
under  seal.^  The  commercial  usage  to  this  effect  is  well  es- 
tablished and  judicially  recognized  in  this  country.*  But  even 
without  the  aid  of  this  usage,  assignments  in  this  form  would 
doubtless  be  upheld  b}^  some  courts. 

In  a  leading  case  upon  this  subject  it  appeared  that  the  owner 
of  certain  shares  of  bank  stock,  which  were  transferable  only  upon 
the  books  of  the  bank,  sent  his  certificate  with  a  blank  power  of 
attorney  under  seal,  and  his  own  promissory  note,  to  an  agent  to 
use  in  obtaining  a  loan.     Subsequently  this  agent   obtained  a 

1  Carroll  v.  Mullanpby  Savings  J.  Eq.  117;  Otis  v.  Gardner  (111. 
Bank,  8  Mo.  App.  249,  per  Hayden,  J.,     1883),  15  Rep.  332. 

citing  Chouteau  Spring  Co.  v.  Harris,  ^  Bridgeport  Bank  v.  N.  Y.  &  N.  H. 

20  Mo.  382,  387;  Moore  v.  Bank,  52  R.  R.  Co.  30  Conn.  231,  273;  Strange 

Mo.  377,  379  ;  Bank  of  Attica  v.  Manu-  v.  H.  &  T.  C.  R.  R.  Co.  53  Texas,  162; 

■  facturers'  Bank,  20  N.  Y.  501,  505 ;  Ro-  Sewall  v.  Boston  Water  Power  Co.  4 

senbackr.  Bank,  53  Barb.  495;  Steam-  Allen  (Mass.),  277;  Walker  v.  Detroit 

ship  Dock  Co.  v.  Heron,  52  Pa.  St.  280.  Transit  Co.  47  Mich.  338. 

2  Kortright  v.  Commercial  Bank  of  ^  ^Vhen  a  general  usage  has  been 
Buffalo,  20  Wend.  (N.  Y.)  91;  S.  C.  judicially  ascertained  and  established, 
22  lb.  348 ;  Leavitt  v.  Fisher,  4  Duer  it  becomes  a  part  of  the  law  mer- 
(N.  Y.),  1  ;  Persch  v.  Quiggle,  57  Pa.  chant,  which  courts  of  justice  are 
St.  247;  German  Union  Building  Asso.  bound  to  know  and  recognize."  Bran- 
V.  Sendmeyer,  50  Pa.  St.  67;  Mount  dao  v.  Barnett,  12  CI.  &  F.  787,  805, 
Holly  Turnpike  Co.  v.  Ferree,  17  N.  per  Lord  Campbell. 

122 


TRANSFERS  IN  BLANK.  [§  164. 

large  loan  upon  these  securities  and  absconded  with  the  money. 
The  pledgee  filled  up  the  blank  transfer  and  power  of  attorney 
and  demanded  a  transfer  of  the  shares  to  himself  upon  the  books 
of  the  bank ;  but  the  bank  refused  to  allow  this.  In  a  suit  by 
the  pledgee  against  the  bank  for  such  refusal  the  pledgee  was 
held  to  be  entitled  to  recover.  Chief  Justice  Nelson,  in  denying 
a  motion  for  a  new  trial,  said  that  the  filling  of  the  blanks  in  the 
transfer  and  in  the  power  of  attorney  was  in  strict  conformity 
with  the  universal  usage  of  dealers  in  the  negotiation  and  trans- 
fer of  stocks,  according  to  the  proof  on  trial.^  "  Even  without 
the  aid  of  this  usage  there  could  be  no  great  difficulty  in  uphold- 
ing the  assignment ;  the  execution  in  blank  must  have  been  for 
the  express  purpose  of  enabling  the  holder,  whoever  he  might  be, 
to  fill  it  up.  If  intended  to  have  been  filled  up  in  the  name  of  the 
first  transferee,  there  would  have  been  no  necessity  of  its  execu- 
tion in  blank :  the  owner  might  have  completed  the  instrument. 
The  usage,  however,  is  well  established,  and  was  fully  understood 
by  the  owner,  as  he  made  the  transfer  in  conformity  to  it,  and  he, 
or  those  setting  up  a  claim  under  him,  should  not  now  be  per- 
mitted to  deny  its  validity.  The  filling  up  is  but  the  execution 
of  an  authority  clearly  conveyed  to  the  holder,  is  lawful  in  itself, 
and  convenient  to  all  parties,  as  it  avoids  the  necessity  of  need- 
lessly multiplying  transfers  upon  the  books."  ^ 

164.  The  decisions  of  the  English  courts  to  the  contrary 
have  been  influenced  chiefly  by  a  rigid  adherence  to  the  tech- 
nical rules  of  the  common  law  in  relation  to  instruments  under 
seal,  though  the  policy  of  the  stamp  laws  ia  said  to  have  had  some 
influence  in  the  same  direction.  It  is  an  ancient  rule  of  the 
common  law  that  an  instrument  under  seal  must  be  wholly 
written  before  sealing  and  delivering  it.  No  blanks  in  any 
essential  part  of  such  an  instrument  can  be  filled  in  after  tlie 
delivery  of  it.  Lord  Mansfield  attempted  to  break  down  this 
rule  in  the  case  of  Texvia  v.  Evans  ;  ^  but  half  a  century  after- 
wards this  case  was  overruled,  and  the  ancient  rule  reestablished. 

1  Kortrij^ht  v.  Coinmorcial  Bank  of         ^  ,9   q^  q^  appeal,  22  Wend.  318. 
Buffalo,   20   Wend.    (X.    Y.)   94,   per         8  Cited  and  stated  l)y  Wilson,  J.,  in 
Nelson,  C.  .T.;  approved  in  Matthews     Master  v.  Miller,  1  Anstr.  225. 
V.   Mass.  Nat.  Bank,  I   Holmes,  396, 
407. 

123 


§  164.]  PLEDGES   OF   CORPORATE   STOCKS. 

This  still  remains  the  rule   in  England,  and  is  adopted  in  the 
greater  number  of  states  in  this  country.^ 

But  while  in  this  country,  even  in  those  states  in  which  this 
rule  of  the  common  law  prevails,  transfers  of  shares  by  assign- 
ments or  powers  of  attorney  in  blank  are  allowed  by  virtue  of 
the  general  commercial  usage,  in  England  no  general  exception 
in  regard  to  such  transfers  has  been  made.  The  case  in  which 
Lord  Mansfield's  new  doctrine  was  finally  repudiated  arose  in  re- 
gard to  the  validity  of  a  transfer  of  shares  by  an  assignment  in 
blank,  which  was  afterwards  filled  up  by  inserting  the  purchaser's 
name.2  The  charter  of  the  corporation  required  a  conveyance  of 
its  shares  to  be  made  by  an  instrument  under  seal.  Baron  Parke, 
delivering  the  judgment  of  the  court,  said:  "There  is  no  au- 
thority that  shows  that  an  instrument  which,  when  executed,  is 
incapable  of  having  any  operation,  and  is  no  deed,  can  after- 
ward become  a  deed,  by  being  completed  and  delivered  by  a 
stranger,  in  the  absence  of  the  party  who  executed  it,  and  un- 
authorized by  instrument  under  seal." 

In  a  later  case  the  owner  of  various  securities,  who  kept  his 
certificates  in  his  brokers  safe  at  a  London  bank,  was  fraudulently 
induced  by  the  broker  to  execute  and  deliver  to  him  several  deeds 
of  transfer  in  blank.  The  broker  filled  up  two  of  the  deeds, 
making  each  of  them  transfer  to  a  confederate  five  hundred 
shares  of  stock  in  the  defendant  railway  company.  The  company 
having  transferred  the  shares  to  the  transferee  named,  the  owner 
brought  suit  against  the  company ;  and  it  was  held  that  the 
transfers  were  void,  and  the  company  was  held  liable,  though  the 
plaintiff  had  been  guilty  of  culpable  negligence.^  But  if  the 
company's  articles  of  association  do  not  require  transfers  to  be 
made  by  deed,  they  may  be  executed  in  blank  and  the  holder 
may  afterwards  fill  them  up.*  The  validity  of  transfers  in  blank 
seems  also  to  be  recognized,  so  far  as  to  impose  upon  the  holder 
the  obligation  to  pay  calls  upon  the  shares.^ 

^  See,  on  this  subject,  1  Jones  on  Langston,   7  M.  &  W.  517;  Eagleton 

Mortgages,  §  90.  v.  Gutteridge,  11  M.  &  W.  465. 

2  Hibblewhite  v.  M'Morine,  6  M.  &  3  g^an  v.  N.  B.  A.  Co.  8  Jur.  940. 

"W.    200.     The   principle   of  this  de-  *  In  re  Tahiti  Cotton  Co.  L.  R.  17 

cision  has  been  affirmed  in  Davidson  Eq.  273;  Ex  parte  Swan,  7  C.  B.  (N. 

V.  Cooper,  1 1  M.  &  W.  7  78,  793 ;  Entho-  S.)  400. 

ven  V.  Hoyle,  13  C.  B.  373;  Humble  v.  s  Walker  v.  Bartlett,  18  C.  B.  845. 

12-1 


TRANSFERS   IN   BLANK.  [§  165. 

165.  A  power  of  attorney  to  transfer  stock,  though  under 
seal,  may  be  executed  in  blank,  just  as  the  assignment  upon 
the  back  of  the  certificate  may  be  executed  in  tins  way.  Such  a 
power  of  attorney,  delivered  with  the  certificate,  is  evidence  of 
an  implied  authority  to  fill  up  the  power  with  the  name  of  an 
attorney  to  make  the  transfer  upon  the  books  of  the  corporation. 
It  is  customary  to  make  the  power  in  this  form,  and  there  is  no 
question  in  regard  to  the  validity  of  such  a  power,  when  it  has 
been  filled  up  according  to  the  intention  of  the  owner.^  But 
when  the  blank  has  been  once  filled,  the  instrument  becomes 
complete ;  and  the  holder  of  the  power  has  no  authority  to  alter 
or  erase  the  name  inserted  and  insert  another.  Thus,  if  the 
owner  of  a  certificate  of  stock  intrusts  it  to  another,  with  a 
power  of  attorney  in  blank,  to  enable  him  to  make  a  specific 
loan,  and  the  loan  is  made  and  afterwards  is  paid,  and  the  stock 
is  returned  to  the  borrower,  who  then  erases  the  name  of  the 
pledgee,  and  inserts  the  name  of  a  creditor  to  whom  he  was 
already  indebted  to  a  large  amount,  upon  the  application  of 
the  original  owner  of  the  shares,  the  creditor  was  enjoined  from 
transferring  the  shares  to  his  own  name.^ 

An  assignment  of  the  certificate,  and  a  power  of  attorney  to 
transfer  the  stock,  may  both  be  executed  in  blank  ;  and  if  the 
owner  of  the  certificate  insert  his  name  in  that,  and  in  the  power 
the  name  of  another,  an  effectual  demand  upon  the  corporation 
for  a  transfer  of  the  stock  can  be  made  by  the  owner,  without 
the  attorney's  joining  in  it.^ 

^German  Union  Building  Asso.  r.  of  convenience  are  suflicient  to  justify. 

Sendmeyer,  50  Pa.  St.  67;  Persch  v.  Malus  usus  abolendus  est.     A  power  of 

Quiggle,  57  Pa.  St.  247.  attorney,  signed,  generally  sealed,  and 

In  an  earlier  case  in  this  state,  how-  duly  delivered,  what  is  it  but  a  finished 

ever  (Denny  i'.  Lyon,  38  Pa.  St.  98),  legal  instrument  ?    Who  may  alter  that 

this  commercial  usage  was  condemned,  paper  writing  to  the  prejudice  of  an- 

AVooflward,  J.,  saying :  "  The  cashier  other,  without    incurring   liability    to 

of  the  Inuik  swears  that  the  name  of  the  charge   of  forgery  ?     ]f   commer- 

the  transferee  is  usually  not  inserted  cial  usage  permits  the  insertion,  eras- 

in  the  power  of  attorney,  and  that  it  ure,  and  subsequent  reinsertion  here, 

is  more  convenient  not  to  iiaveitin-  what  other  legal  instrument  may  not 

serted.      We  know  that  this  is  com-  commercial  usage  tamper  with  in  like 

mcrcial  usage;  it  was  probably  origi-  manner?  " 

nated  by  the  banks  ;  iJ  not,  they  have  -  Denny  v.  Lyon.  38  Pa.  St.  98. 

countenanced   it,    and    thus    brought  ^  Cushman  v.  Tliayer,  Manufactur- 

people  to  practise  it,  and  yet  it  is  a  ing  Jewelry  Co.  70  N.  Y.  3(15. 
vicious  usage,  which  no  considerations 

125 


§§  166,  167.]  PLEDGES   OF   CORPORATE   STOCKS. 

166.  The  death  of  the  pledgor  of  a  certificate  indorsed  by 
him  in  blank  does  not  revoke  the  authority  of  the  pledgee 
to  fill  up  a  written  transfer  of  the  certificate  to  himself  or  to 
another  ;  and  it  does  not  matter  in  this  respect  that  the  certifi- 
cate, by  its  terms,  is  transferable  only  at  the  office  of  the  cor- 
poration by  appearance  of  the  holder  in  person,  or  by  attorney .^ 

167.  The  signing  of  a  transfer  in  blank  on  a  certificate 
of  stock  is  a  warranty  of  the  genuineness  of  the  certificate. 
The  rule  is  the  same,  and  rests  upon  the  same  grounds,  as  that 
established  with  reference  to  negotiable  instruments,  to  the  effect 
that  every  indorser  holds  himself  out  as  possessing  a  clear  title 
to  the  papei',  and  as  conferring  such  a  title  upon  his  indorsee. 

It  becomes  of  importance,  therefore,  that  one  taking  a  certifi- 
cate in  his  own  name,  as  security  for  a  loan,  should  know  the 
genuineness  of  the  certificate,  not  only  with  a  view  to  the  security 
of  the  loan,  but  with  a  view  to  avoiding  a  loss  greater,  perhaps, 
than  the  whole  of  the  loan,  through  putting  the  certificate  in  cir- 
culation after  the  payment  of  the  loan,  by  indorsing  a  transfer  of 
it  in  blank.  This  point  is  forcibly  illustrated  in  the  case  of  Mat- 
thews V.  Massachusetts  National  Bank.^  This  bank  made  a  loan 
upon  a  certificate  of  stock  issued  as  collateral  directly  to  the  bank 
for  two  shares  of  the  stock  of  the  Boston  and  Albany  Railroad 
Company,  which  certificate  the  borrower,  before  delivering  to 
the  bank,  fraudulently  altered,  so  as  to  purport  to  be  for  two 
hundred  shares.  The  bank  received  the  certificate  in  good  faith 
as  security  for  a  loan,  and  upon  the  payment  of  the  loan  the 
bank,  by  its  cashier,  signed  a  transfer  in  blank  upon  the  back  of 
the  certificate,  and  delivered  it  to  the  borrower.  A  short  time 
afterwards  the  same  borrower  obtained  from  a  third  person  an- 
other and  larger  loan,  upon  a  pledge  of  the  certificate,  still  having 
the  bank's  assignment  in  blank  upon  it.  This  lender  took  the 
certificate  in  good  faith,  supposing  it  to  be  genuine,  but  very  soon 
discovered  the  fraudulent  alteration,  and  brought  suit  against  the 
bank  for  the  recovery  of  the  damages  he  had  sustained.  The 
question  presented  was  whether  the  bank  had,  by  signing  the 
blank  transfer,  so  far  warranted  the  genuineness  of  the  certificate 

1  Fraser  17.  Charleston,  11  S.  C.  486;         ^  1  Holmes,  396.     See  note  to  this 
Leavitt  v.  Fisher,  4  Uuer  (N,  Y.),  1,     case,  14  Am.  Law  Reg.  N.  S.  153. 
per  Duer,  J. 

126 


TRANSFERS   IN   BLANK.  [§  167. 

that  it  was  estopped  from  setting  up  the  forgery  as  a  defence  to 
the  action,  and  the  bank  was  held  liable. 

It  was  contended  in  behalf  of  the  bank  that  the  transfer  created 
no  liability  to  any  subsequent  holder  of  the  certificate,  because 
the  circumstances  under  which  it  was  taken  and  surrendered  in- 
dicated that  the  transfer  was  made  solely  for  the  purpose  of 
restoring  the  pledge  to  the  borrower  after  he  had  paid  this  loan. 
But  the  court  replied  that  there  was  nothing  to  show  that  the 
subsequent  lender  had  any  knowledge  of  any  such  intention  on 
the  part  of  the  bank ;  that  although  the  certificate  purported 
that  the  bank  held  the  shares  as  collateral,  it  did  not  show  for 
whose  debt  they  were  collateral ;  that  such  a  certificate,  with  a 
transfer  in  blank,  might,  in  the  ordinary  course  of  dealing,  pass 
through  the  hands  of  many  successive  purchasers,  and  the  pos- 
session of  it  would  afford  no  indication  that  the  holder  of  it  was 
the  person  who  had  originally  transferred  it  to  the  bank  as  col- 
lateral ;  that  if  the  bank  had  enforced  payment  of  the  loan  by  a 
sale  of  the  stock,  and  had  assigned  the  certificate  in  this  form, 
the  purchaser  would  have  been  in  the  same  condition  as  the  sub- 
sequent pledgee  ;  and  if  this  pledgee  had  dealt  with  the  pur- 
chaser, he  would  have  received  no  better  evidence  of  title  against 
the  bank  than  he  in  fact  received  from  the  borrower  himself. 
The  mere  words  "  as  collateral "  in  the  instrument  do  not  tend 
to  put  the  purchaser  on  inquiry,  except  so  far  as  relates  to  the 
authority  of  the  bank  to  dispose  of  the  collateral  as  between  the 
bank  and  its  debtor.  If  inquiry  had  been  made  of  the  bank,  it 
would  only  have  resulted  in  the  information  that  the  bank  had 
made  a  loan  upon  the  certificate,  and  the  loan  having  been  paid, 
the  assignment  was  made  in  blank  by  the  joint  act  and  consent 
of  the  debtor  and  the  bank.  There  would  have  been  nothing  in 
this  information  to  lead  the  inquirer  to  doubt  the  genuineness  of 
the  certificate  to  which  the  bank  had  given  currency  by  its  signa- 
ture. Neither  could  the  bank  contend,  with  any  show  of  reason, 
that  the  subsequent  pledgee  was  negligent  in  not  inquiring  at 
the  office  of  the  railroad  corporation.  If  the  duty  of  making 
such  inquiry  was  incumbent  on  any  one,  it  was  incumbent  on  the 
bank  to  ascertain  the  genuineness  of  the  instrument  before  giving 
currency  to  it,  and  lulling  suspicion  and  doubt  by  the  responsi- 
bility of  its  signature.  One  taking  the  certificate  in  this  form 
might  reasonably  suppose  that  the  bank  had  obtained  the  certifi- 
cate itself  from   the  railroad  company  in  the  usual  way,  thus 

127 


§  168.]  PLEDGES   OF   CORPORATE   STOCKS. 

preventing  the  possibility  of  fraud  or  forgery.  The  bank,  in  fact, 
negligently  placed  confidence  in  the  borrower  to  obtain  a  transfer 
from  the  railroad  company,  instead  of  obtaining  it  directly.  But 
the  negligent  act,  which  especially  imposed  upon  the  bank  a  lia- 
bility in  this  case,  was  that  it  delivered  the  forged  instrument  to 
the  borrower,  assigned  in  blank,  and  authenticated  by  the  signa- 
ture of  its  proper  officer,  thus  giving  it  a  currency  which  it  would 
not  have  possessed  had  the  transfer  been  made  directly  to  the 
borrower.  If  the  bank  had  intended  merely  to  revest  in  the 
borrower  whatever  it  acquired  from  him,  it  would  have  been 
perfectly  easjj^  to  have  limited  the  transfer  to  that  extent  only. 
If  the  conditions  upon  which  the  ap|)arent  right  of  control  which 
the  bank  conferred  upon  the  borrower  were  not  expressed  upon 
the  face  of.  the  instrument,  but  remained  in  confidence  between 
the  bank  and  the  borrower,  the  case  is  not  distinguishable  in 
principle  from  that  of  an  agent  who  receives  secret  instructions 
qualifying  or  restricting  an  apparently  absolute  power.  One  of 
two  innocent  parties  must  suffer  ;  and  the  courts  have  repeatedly 
held  that  the  party  must  suffer  who  has  exhibited  the  greater  de- 
gree of  negligence. 

V.    Transfer  hy  Delivery  of  Certificate  as  bettveen  the  Parties. 

168.  The  effect  of  a  transfer  of  stock  by  delivery  of  the 
certificate  with  a  power  of  trjansfer  is,  therefore,  to  be  consid- 
ered :  1.  As  between  the  parties  to  the  transfer  ;  2.  As  between 
them  and  the  corporation  itself ;  and  3.  As  between  them  and 
attaching  creditors. 

Whatever  be  the  view  taken  of  the  necessity  of  a  transfer  upon 
the  books  of  a  corporation  in  order  to  protect  the  title  of  such  as- 
signee as  against  subsequent  attaching  creditors  of  the  assignor,  it 
is  agreed  that,  as  between  the  parties  themselves,  the  title  passes 
by  indorsement  and  delivery  of  the  certificate,  without  any  entry 
of  the  transfer  upon  the  books  of  the  corporation  ;  ^  or  even  with- 
out fining  up  the  transfer  where  this  has  been  signed  in  blank.^ 

1  Johnston  v.  Laflin,  103  U.  S.  800  ;  Fitchburg   Savings   Bank  v.  Torrey, 

Bank  v.  Lanier,  11  Wall.  369;  National  134  Mass.         ;  S.  C.  Mass.  Law  Rep. 

Bank  v.  Watsontown  Bank,  105  U.  S.  May  3,  1883  ;  Cherry  v.  Frost,  7  Lea 

217  ;  Ex  parte  Dobson,  2  Mont.,  D.  &  (Tenn.),  1,  per  Cooper,  J. 

De  G.  685;  Dickinson  t;.  Central  Bank,  2  Otis   v.   Gardner   (111.   1883),    15 

129    Mass.  279  ;    Sibley  v.   Quinsiga-  Rep.  332  ;   Ross   v.   Southwestern   R. 

mond    Nat.   Bank.    133    Mass.    515  ;  R.  Co.  53  Ga.  514  ;  Comeau  v.  Guild 

128 


TRANSFERS   AS   BETWEEN   THE   PARTIES. 


[§  169. 


A  by-law  requiring  a  transfer  to  be  made  upon  the  books  of  a 
corporation  does  not  restrict  the  owner  in  his  right  to  transfer  his 
stock,  or  give  the  corporation  the  power  to  refuse  to  register  a 
bond  fide  transfer.  As  between  the  parties,  the  sale  is  complete 
when  the  certificate  is  assigned  with  power  to  make  a  transfer 
upon  the  books  of  the  corporation. ^ 


169.  By  a  delivery  of  a  stock  certificate  with  a  power  of 
transfer,  the  title  passes  as  between  the  parties  to  the  trans- 
action ;  and  in  this  respect,  it  matters  not  whether  such  transfer 
be  deemed  to  pass  a  legal  or  ain  equitable  title.^  In  a  case  relat- 
ing to  such  a  transfer  of  shares  of  a  national  bank,  Mr.  Justice 
Field  in  delivering  the  judgment  of  the  Supreme  Court,  said  :  ^ 
"  The  entry  of  the  transaction  on  the  books  of  the  bank,  where 
stock  is  sold,  is  required,  not  for  tlie  translation  of  the  title,  but 
for  the  protection  of  the  parties  and  others  dealing  with  the 
bank,  and  to  enable  it  to  know  who  are  its  stockholders,  entitled 
to  vote  at  their  meetings  and  receive  dividends  when  declared. 

Farm  Oil  Co.  3  Daly  (N.  Y.),  218; 
Smith  V.  Crescent  City  Stock  Landing 
Co.  30  La.  Ann.  1378. 

^  Johnson  v.  Laflin,  5  Dill.  65 ;  S.  C. 
103  U.  S.  800  ;  17  Albany  L.  J.  146  ; 
a.  C.  Thompson's  Nat.  Bank  Cases, 
343  ;  Bank  v.  Lanier,  11  Wall.  3G9. 
Georgia  :  Ross  v.  Southwestern  R.  R. 
Co.  53  Ga.  514  ;  Railroad  Co.  v. 
Thomason,  40  Ga.  411.  Massachu- 
setts :  Dickinson  c.  Cent.  Nat.  Bank, 
129  Mass.  279  ;  Sibley  v.  Quinsiga- 
mond  Nat.  Bank,  133  Mass.  515  ; 
Sargent  i'.  Franklin  Ins.  Co.  8  Pick. 
90;  Fitchburg  Savings  Bank  v.  Tor- 
rey,  134  Mass.  ;  S.  C.  Mass.  Law 
Rep.  May  3,  1883.  Missouri:  Mer- 
chants' Nat.  Jiank  v.  Richards,  6  Mo. 
App.  454  ;  Moore  i-.  Bank,  52  Mo. 
377;  Carroll  v.  MuUanpliy  Sav.  Hank, 
8  Mo.  Ai)p.  241^.  Rhode  Island  : 
Hoppin  i\  Buduiii,  !i  R.  L  513  ;  Beck- 
with  V.  Burrough,  13  R.  J.  294. 
Pennsylvania:  German  Union  Asso. 
V.  Sendmeyer,  50  Pa.  St.  67  ;  United 
States  V.  Vaughan,  3  Binn,  394.  New- 
York  :  Leavitt  v.  Fi.slier,  4  Duer,  1  ; 
9 


Munn  V.  Barnum,  24  Barb.  283  ;  Orr 
V.  Bigelow,  20  Barb.  21.  Texas: 
Strange  v.  Houston  &  Tex.  Cent.  R.  R. 
Co.  53  Tex.  162  ;  S.  C.  10  Rep.  28. 
Other  States  :  Kellogg  v.  Stockwell, 
75  111.  68  ;  Baldwin  v.  Canfield,  26 
Minn.  43  ;  Fraser  v.  Charleston,  11 
S.  C.  486  ;  Baltimore  City  Passenger 
Ry.  Co.  V.  Sewell,  35  Md.  238  ;  Noyes 
V.  Spaulding,  27  Vt.  420;  Cornick  v. 
Richards,  3  Lea  (Tenn.),  1  ;  Bank  of 
America  v.  McNeil,  10  Bush  (Ky.), 
54. 

2  National  Bank  v.  Watsontown 
Bank,  105  U.  S.  217  ;  S.  C.  4  Morri- 
son's Trans.  400 ;  Johnson  v.  Laflin, 
103  U.  S.  800  ;  Carroll  v.  MuUanphy 
Savings  Bank,  8  Mo.  App.  249;  Mer- 
chants' Nat.  Bank  r.  Richards,  6  Mo. 
454;  Jolinson  v.  Underbill,  52  N.  Y. 
203;  McNeil  v.  Tenth  Nat.  Bank,  46 
N.  Y.  325. 

8  Johnson  r.  Laflin,  xuprn ;  and  see 
National  Bank  v.  Watsontown  Bank, 
supra;  Sibley  v.  Quinsigamond  Nat. 
Bank.  133  Mass.  515. 

129 


§  170.]         PLEDGES  OF  CORPORATE  STOCKS. 

It  is  necessary  to  protect  the  seller  against  subsequent  liability 
as  a  stockholder,  and  perhaps  also  to  protect  the  purchaser  against 
proceedings  of  the  seller's  creditors.  Purchasers  and  creditors 
are  only  bound  to  look  to  the  books  of  registry  of  the  bank.  But 
as  between  the  parties  to  a  sale,  it  is  enough  that  the  certificate 
is  delivered  with  authority  to  the  purchaser,  or  any  one  he  may 
name,  to  transfer  it  on  the  books  of  the  company,  and  the  price 
is  paid." 

170.  Some  authorities  hold  that,  as  between  the  parties, 
the  delivery  of  the  certificate,  with  assignment  and  power 
indorsed,  passes  the  entire  title,  legal  and  equitable,  in  the 
shares,  notwithstanding  that,  by  the  terms  of  the  charter  or  by- 
laws of  the  corporation,  the  stock  is  declared  to  be  transferable 
only  on  its  books ;  ^  that  such  provisions  are  intended  solely  for 
the  protection  of  the  corporation,  and  can  be  waived  or  asserted 
at  its  pleasure,  and  that  no  effect  is  given  to  them  except  for  the 
protection  of  the  corporation  ;  that  they  do  not  incapacitate  the 
shareholder  from  parting  with  his  interest,  and  that  his  assign- 
ment, not  on  the  books,  passes  the  entire  legal  title  to  the  stock, 
subject  only  to  such  liens  or  claims  as  the  corporation  may  have 
upon  it,  and  excepting  the  right  of  voting  at  elections.  In  the 
case  of  Kortright  v.  Commercial  Bank  of  Buffalo,^  Chancellor 
Walworth,  in  a  dissenting  opinion,  strenuously  maintained,  in 
conformity  with  his  previous  decision  in  Stebbins  v.  Phoenix  Ins. 
Co.,^  that  by  a  transfer  not  on  the  books,  the  transferee  acquired 
only  an  equitable  right  to  or  lien  on  the  shares ;  and  that,  hav- 
ing but  an  equitable  right  or  lien,  he  took  subject  to  all  prior 
equities  which  existed  in  favor  of  any  other  person  from  whom 
such  assignment  was  obtained.  But  his  view  was  ovei-ruled  by 
the  majority  of  the  court.  The  action  was  at  law  in  assumpsit, 
brought  by  the  holder  of  the  certificate  and  power,  for  a  refusal 

1  New  York:  Cusliman  ?;.  Thayer  In  Holbrook  v.  N.J.  Zinc  Co.  57 

Manufacturing  Jewelry  Co.  76  N.  Y.  N.  Y.  623,  it  is  declared  that  "  one 

365,   371,  per  Miller,  J.  ;  McNeil  v.  who  takes  an  assignment  of   a  stock 

Tenth  Nat.  Bank,  46  N.  Y.  325,  per  certificate,  as   between   him  and   the 

Rapallo,  J. ;  Smith  r.  Am.  Coal  Co.  7  transferrer  takes  the  whole  title,  both 

Lans.  317;  Hill  r.  Newichawanick  Co.  legal  and  equitable." 

48  How.  Pr.  427;  Leitch  y.  Wells,  48  2  20   Wend.    91;  S.    C.  22   Wend. 

N.  Y.  585;  Grymes  v.  Hone,  49  N.  Y.  348. 

17.  83  Paige  (N.  Y.),  350,  356. 
130 


TRANSFERS   AS   BETWEEN   THE   PARTIES.  [§  171. 

to  permit  liim  to  make  a  transfer  on  the  books,  and  the  question 
of  his  legal  title  was  necessarily  involved  in  the  case.  The  judg- 
ment therein  must  therefore  be  regarded  as  a  direct  adjudication 
that,  as  between  the  parties,  the  legal  title  in  the  shares  will  pass 
by  delivery  of  the  certificate  and  power.  This  was  reasserted  in 
the  New  Haven  Railroad  case,i  notwithstanding  what  was  said  in 
the  Mechanics'  Bank  case.^ 

The  Court  of  Appeals  of  New  York,  in  a  case  already  cited, 
say  :3  "  By  omitting  to  register  his  transfer,  the  holder  of  the  cer- 
tificate and  power  fails  to  obtain  the  right  to  vote,  and  may  lose 
his  stock  by  fraudulent  transfer  on  the  books  of  the  company  by 
the  registered  holder  to  a  bond  fide  purchaser ;  *  but  in  this  re- 
spect he  is  in  a  condition  analogous  to  that  of  the  holder  of  an 
unrecorded  deed  of  land,  and  possesses  a  no  less  perfect  title  as 
against  the  assignor  and  others.  He  would  have  an  action  against 
the  corporation,  for  allowing  such  a  transfer  in  violation  of  his 
rights.^  He  also  takes  the  risk  of  the  collection  of  dividends  by 
his  assignor,  and  the  risk  of  any  lien  the  corporation  may  have 
on  the  shares.     But  in  other  respects  his  title  is  complete." 

171.  But  on  the  other  hand  other  courts  hold  that  the  de- 
livery of  a  certificate  with  a  power  of  transfer,  gives  the 
holder  nothing  more  than  an  equitable  title.*^  Such  a  transfer 
makes  the  holder  presumptively  tlie  equitable  owner  of  the 
shares,  and  if  he  has  given  value  for  them  without  notice  of  any 
intervening  equity,  his  title  as  such  owner  cannot  be  impeached. 
"  The  certificate  of  stock,  accompanied  by  the  power  of  attorney 
authorizing  the  transfer  of  the  stock  to  any  person,  is  prima  facie 

1  34  N.  Y.  30,  80.  America  v.  McNeil,  10  Bush  (Ky.), 

2  13  X.  Y.  625.  54;  see  State  Ins.  Co.  v.  Sax,  2  Tenn. 
8  McNeil  V.  Tenth   Nat.  Bank,  46     Ch.  507;  United  States  v.  Vaughan,  3 

N.  Y.  325,  332;  per  Rappallo,  J.  Binn.  (Pa.)  394,  39«  ;  WilUs  v.  Phila. 

*  New  York   &  N.  II.  R.  11.  Co.  v.  &  Darby  II.  R.  Co.  6  Weekly  Notes  of 

Schuyler,  34  N.  Y.  30,  80.    See,  also,  Cases,  461  ;  Bruce  v.  Smith,  44  Ind. 

Smith  V.  Am.  Coal    Co.  7  Lans.  (N.  1,5.     In  Bank  of  America  u.  McNeil, 

''•)  ^^^'  supra,  the  court  spoke  of  an  assign- 

^  See,    also,     Cushman    v.    Thayer  ment  of  the  certificate,  with  a  power 

Manufacturing  Jewelry  Co.  76  N.  Y.  to    transfer,  where    the   corporation's 

.i65,  371.  charter  provides  for  a   transfer  upon 

'  Black   V.   Zacharie,  3    How.  483;  its  books,  as  a  syml)olical  delivery  of 

Mount    Holly  etc.    Turnjiike    Co.   v.  the    stock,    edectual    against    persons 

I'erree   17    N.  J.  E4.    117;  Bank   of  having  actual  notice  of  it. 

i:U 


§§  172,  173.]    PLEDGES  OF  CORPORATE  STOCKS. 

evidence  of  equitable  ownership  in  the  holder,  and  renders  the 
stock  transferable  by  the  delivery  of  the  certificate.  And  when 
the  party  in  whose  hands  the  certificate  is  found,  is  shown  to  be 
a  holder  for  value  and  without  notice  of  any  intervening  equity, 
his  title  as  such  owner  cannot  be  impeached.  The  holder  of  the 
certificate  may  insert  his  own  name  in  the  power  of  attorney  and 
execute  tlie  power,  and  thus  obtain  the  legal  title  to  the  stock, 
whenever  the  loan  for  which  it  was  hypothecated  becomes  due,  or 
whenever,  by  the  terms  of  his  contract,  he  becomes  entitled  to  the 
stock.  And  such  a  power  is  not  limited  to  the  person  to  whom 
it  was  first  delivered,  but  enures  to  the  benefit  of  each  bond  fide 
holder,  into  whose  hands  the  certificate  and  power  may  pass."^ 

VI.  Such  Transfers  as  between  the  Parties  and  the  Corporation. 

172.  But  as  against  the  corporation  itself  a  transfer  not 
entered  upon  the  books  of  the  company  is,  as  a  general  rule, 
not  binding  upon  it.^  The  corporation  is  not  bound  to  recog- 
nize as  stockholders  any  persons  who  do  not  appear  to  be  sucli 
upon  the  corporation's  books.  Thus  an  assignee  of  shares  cannot 
at  law  recover  a  dividend  declared  by  the  company  until  his  as- 
signment has  been  entered  upon  the  company's  books,  as  required 
by  its  charter  and  by-laws.^  On  the  other  hand  until  an  assign- 
ment has  been  made  and  entered  in  the  manner  prescribed,  the 
assignee  does  not  become  liable  to  pay  assessments  laid  upon  the 
shares.*  A  lien  given  by  the  charter  and  by-laws  of  a  corpora- 
tion upon  the  shares  of  its  stockholders,  may  be  enforced  by  it 
against  the  stockholder  of  record,^  and  cannot  be  enforced  against 
an  equitable  assignee,  no  transfer  having  been  executed  upon  its 
books.^ 

173.  An  actual  transfer  upon  its  books  is  necessary  as 
against  the  corporation  to  make  an  available  and  complete 

1  Mount  Holly,  &c.  Turnpike  Co.  v.  Manning  v.  Quicksilver  Mining  Co. 
Ferree,  17  N.  J.  Eq.  117,  per  Green,     24  Hun.  N.  Y.  360. 

Chancellor.  ^  Oxford  Turnpike  Co.  v.  Bunnel, 

2  Stockwell  V.  St.  Louis  Mercantile     6  Conn.  552. 

Co.  9  Mo.  App.  133;  Becher  v.  AVells  *  Marlborough  Manuf.  Co.  v.  Smith, 

Flouring  Mill  Co.  1  Fed.  Rep.  2  76;  2  Conn.  579. 

Laing  v.  Burley,  101  111.  591;  Otis  v.  ^  Union  Bank  v.  Laird,  2  Wheat. 

Gardner    (111.  'l883),    15    Rep.    332;  390. 


132 


6  Helm  V.  Swiggett,  12  Ind.  194. 


AS   BETWEEN   THE    PARTIES   AND   THE   CORPORATION.       [§  174. 

title  ;  and  such  a  transfer  is  necessary  even  in  the  absence  of  any 
provision  in  the  charter,  or  in  the  stock  certificate  requiring  such 
a  transfer.!  This  was  the  case  in  Bank  of  Commerce's  Appeal.^ 
A  shareholder  in  a  building  association  obtained  from  this  bank 
a  loan  upon  his  certificate  of  stock,  accompanied  by  a  power  of 
attorney  to  transfer  it.  By  the  articles  of  association  the  share- 
holder was  entitled  to  a  loan  from  the  association  of  a  certain 
sum  upon  each  share,  and  he  subsequently  borrowed  from  the  as- 
sociation the  full  amount  to  which  he  was  entitled,  and  trans- 
ferred his  stock  to  it,  although  the  bank  still  held  his  certificate. 
The  charter  of  the  association  expired  while  this  state  of  facts 
continued,  and  the  assets  were  distributed  by  the  officers  amongst 
the  stockholders  shown  to  be  such  by  its  books,  including  the  as- 
sociation itself  as  pledgee  of  the  stock  of  this  shareholder,  with- 
out notice  from  the  bank.  It  was  held  that  the  bank  had  no 
claim  under  its  certificate.  The  court,  by  Agnew,  Justice,  say : 
"  The  assignment  of  the  certificate  is  only  an  equitable  transfer 
of  the  stock,  and  to  be  made  available  must  be  produced  to  the 
corporation  and  a  transfer  demanded.  As  between  adverse  claim- 
ants of  the  certificate,  the  possession  of  it  with  the  transfer 
upon  it  is  often  the  test  of  title.  But  when  the  corporation  itself 
is  not  dealing  with  its  stockholder  on  the  security  of  his  stock,  and 
is  merely  performing  a  corporate  duty,  its  own  record  is  all  it 
needs  to  consult,  for  whoever  would  demand  the  privileges  of  a 
stockholder  should  produce  the  evidence  of  his  title  and  ask  to 
be  permitted  to  participate.  The  officers  acted  officially  as  the 
trustees  of  the  expired  corporation,  to  settle  its  affairs  under  the 
powers  conferred  by  the  law,  and  in  doing  so  made  their  distribu- 
tion, according  to  the  record  of  the  corporation,  which  exhibited 
the  membership  of  *the  corporation.  In  doing  this,  without  any 
notice  from  the  bank  of  its  equitable  assignment  of  the  stock, 
clearly  they  were  not  guilty  of  any  negligence,  while  the  loss  of 
the  bank  was  attributable  to  its  own  negligence,  and  negligence 
on  their  part  is  the  only  ground  of  its  bill." 

174.  A  provision  that  a  certificate  of  stock  shall  be  trans- 
ferable only  upon  the  books  of  the  corporation  is  designed 
primarily  for  the  safety  and  security  of  the  corporation,  and 

^  Denny  r.  Lyon,  38  Pa.  St.  98;  Sit-         *  73  p^.  gt.  59. 
Rreaves    i--.    Farmers'   &    Mechanics' 
Bank,  49  Pa.  St.  359,  365. 

133 


§  175.]  PLEDGES  OF  CORPORATE  STOCKS. 

incidentally  for  the  safety  of  purcbasers.i  Upon  this  point  the 
Suj)reme  Court  of  Louisiana  say  :  "  The  by-law  which  requires 
transfers  of  stock  to  be  recorded  on  the  books  of  the  corporation 
regulates  merely  the  respective  rights  of  the  corporation  and  the 
individual  stockholders.  No  one  can  claim  to  be  a  stockholder, 
and  to  exercise  the  rights  of  a  corporator,  in  virtue  of  a  sale  of 
stock  to  him,  until  the  corporation  has  taken  cognizance  of  the 
sale,  and,  by  transfer  on  its  books,  has  substituted  the  purchaser 
for  the  seller.  Whether  one  has  acquired  the  character  and  the 
rights  of  a  corporator,  is  a  question  to  be  determined  by  the  laws 
of  the  corporation.  Whether  a  purchaser  has  acquired  a  good 
and  perfect  title  to  any  property  or  thing,  tangible  or  intangible, 
is  a  question  to  be  solved  by  the  general  laws  of  the  state  appli- 
cable to  the  sale  and  transfer  of  such  objects."  ^ 

It  has  been  argued  that  an  actual  transfer  upon  the  books  of  a 
corporation  is  not  the  only  and  essential  evidence  of  ownership  ex- 
cept for  the  corporation  itself,  because  the  books  of  a  corporation 
are  of  a  private  nature  and  are  not  open  to  public  inspection. 
"  It  is  not,  therefore,  to  apprise  the  world  and  prevent  it  from 
giving  a  false  credit  to  the  apparent  owner  of  stock  that  the 
transfer  thereof  is  required  to  be  made  on  the  books  of  the  bank 
in  the  presence  of  one  of  its  officers.  The  great  object  of  requir- 
ing transfers  to  be  made  in  this  manner,  is,  to  prevent  all  difl&- 
culty  that  otherwise  might  arise  with  those  who  have  the  direc- 
tion and  management  of  the  corporation,  in  ascertaining  the  per- 
sons who  are  to  be  regarded  and  treated  by  them  as  the  owners 
of  the  stock  and  as  corporators.  No  persons,  therefore,  are  to  be 
regarded  by  them  as  such,  excepting  those  in  whose  names  the 
stock  is  entered  and  holden."  ^ 

175.  As  against  the  corporation  a  transfer  upon  its  books 
is  necessary  to  confer  a  legal  title.  The  mere  transfer  of  the 
certificate,  although  accompanied  by  a  written  direction  to  the 

1  Fraser  17.  Charleston,  11  S.  C.  486;  Dicta   to    the    contrary  in    White  v. 

Merchants'  Nat.  Bank  V.Richard,  6  Salisbury,  33  Mo.  150,  and  Boatmen's 

Mo.  App.  454;  Insurance  Co.  v.  Good-  Ins.  Co.  v.  Able,  48  Mo.  136,  are  not 

fellow,  9  Mo.  150;  Johnson  v.  Laflin,  considered  as  law. 

103  U.  S.  800;  Carroll  v.  Mullanphy  ^  Smith   v.  Slaughter-House  Co.  30 

Sav.  Bank,  8  Mo.  App.  249;  Chouteau  La.  Ann.  1378,  1382. 

Spring  Co.   V.    Harris,    20   Mo.    382;  ^  Commonwealth    v.  Watmough,    6 

Moore'   v.   Bank,    52   Mo.    377,    379.  Whart.  (Pa.)  117,  139. 

134 


AS  BETWEEN  THE   PARTIES   AND    THE   CORPORATION.       [§  176. 

secretary  of  the  corporation  to  make  the  necessary  transfer  upon 
the  books,  gives  the  assignee  an  equitable  title  only,  so  far  as  the 
corporation  is  concerned,  until  the  transfer  is  actually  made  upon 
the  books.i  "  The  certificates  do  not  constitute  property  in  the 
corporation :  they  are  the  muniments  of  title,  bat  it  is  the  shares 
of  stock  which  constitute  the  property,  and  the  persons  whose 
names  appear  upon  the  books  of  the  corporation  are  presumed  to 
be  the  stockholders  ;  they  have  the  right  to  vote  and  participate 
in  directing  the  policy  of  the  company."  ^  Until  the  transfer  is 
made  upon  the  books  the  corporation  does  not  recognize  an  as- 
signee as  a  stockholder.  If  an  assignee  having  the  proper  muni- 
ments of  title  should  make  a  demand  upon  the  proper  officers  of 
the  corporation  for  a  transfer  upon  the  books,  and  the  corporation 
should  neglect  or  refuse  to  make  it,  relief  could  be  had  by  proper 
legal  proceedings. 

176.  A  transfer  of  shares  upon  the  books  of  a  corporation 
without  a  surrender  of  the  outstanding  certificate  is  ineffec- 
tual when  the  certificate  issued  by  the  corporation  formally  pro- 
vides that  the  shares  are  transferable  on  the  books  of  the  corpo- 
ration, in  person  or  by  attorney,  only  on  the  surrender  of  the 
certificate.  A  national  bank  having  issued  such  certificates, 
made  a  loan  to  a  stockholder  upon  a  transfer  of  shares  to  the 
bank  without  his  producing  or  surrendering  his  certificate,  which 
he  had  already  sold  and  assigned  to  a  purchaser  for  value  with  a 
power  of  attorney  to  transfer  ;  but  the  purchaser  delayed  obtain- 
ing a  transfer  upon  the  books  of  the  bank  until  the  bank  in  the 
mean  time  made  the  loan  to  the  stockholder  and  in  fact  sold  a 
part  of  the  stock  upon  the  borrower's  default.  In  a  suit  by  the 
purchaser  of  the  stock  against  the  bank  for  refusing  to  transfer 
the  stock  to  him  upon  the  books,  the  Supreme  Court  of  the 
United  States  held  the  bank  liable.^  The  bank  in  allowing  a 
transfer  to  itself  of  the  stock  upon  its  books  while  the  certificate 
was  outstanding  in  the  hands  of  a  bond  fide  purchaser,  was  guilty 

^  Beclier    v.    Wells   Flouring  Mill  Thayer  Manufaoturing    Jewelry  Co. 

Co.  1  Fed.  Rep.  27G.  76  N.  Y.  3C5;  Hall  v.  Rose  Hill,  &c. 

"  Beoher    v.    Wells   Flouring    Mill  Road  Co.  70  111.  G  73;  Johnson  r.  Laf- 

Co.  supra,  per  Nelson,  J.  lin,  5  Dill.  G."},  aflirmed,  103  U.  S.  800 ; 

'  Bank    V.   Lanier,    11    Wall.  369.  Strange  v.  Houston  &  Tex.    Cent.  R. 

And  .see  N.  Y.  &  N.  II.  R.  R.  Co.  v.  R.  Co.  53  Tex.  162. 
Schuyler,   34   N.  Y.  30  ;  Cushtnan  v. 

135     - 


§  176.]         PLEDGES  OF  CORPORATE  STOCKS. 

of  a  breach  of  corporate  duty,  and  must  render  satisfaction  to 
the  purchaser.  "  He  is  told,  under  the  seal  of  the  corporation," 
said  Mr.  Justice  Davis,  delivering  the  opinion  of  the  court,  "  that 
the  shareholder  is  entitled  to  so  much  stock,  which  can  be  trans- 
ferred on  the  books  of  the  corporation,  in  person  or  by  attorney, 
when  the  certificates  are  surrendered,  but  not  otherwise.  This 
is  a  notification  to  all  persons  interested  to  know,  that  whoever 
in  good  faith  buys  the  stock,  and  produces  to  the  corporation  the 
certificates,  regularly  assigned,  with  power  to  transfer,  is  entitled 
to  have  the  stock  transferred  to  him.  And  the  notification  goes 
further,  for  it  assures  the  holder  that  the  corporation  will  not 
transfer  the  stock  to  any  one  not  in  possession  of  the  certifi- 
cates." 

This  decision  was  made  not  upon  the  ground  of  the  negotiabil- 
ity of  the  certificate,  but  upon  the  ground  that  the  corporation 
was  guilty  of  a  breach  of  corporate  duty  in  allowing  a  transfer  to 
be  made  without  a  surrender  of  the  certificate  which  in  terms 
provided  that  the  shares  should  be  transferable  on  the  books  of 
the  bank,  in  person  or  by  attorney,  only  on  the  surrender  of  the 
certificate.  "  The  power  to  transfer  their  stock,"  say  the  court,^ 
is  one  of  the  most  valuable  franchises  conferred  by  Congress  on 
banking  associations.  Without  this  power,  it  can  readily  be 
seen  the  value  of  the  stock  would  be  greatly  lessened,  and,  obvi- 
ously, whatever  contributes  to  make  the  shares  of  the  stock  a  safe 
mode  of  investment,  and  easily  convertible,  tends  to  enhance 
their  value.  It  is  no  less  the  interest  of  the  shareholder,  than 
the  public,  that  the  certificate  representing  his  stock  should  be 
in  a  form  to  secure  public  confidence,  for  without  this  he  could 
not  negotiate  it  to  any  advantage.  It  is  in  obedience  to  this  re- 
quirement, that  stock  certificates  of  all  kinds  have  been  con- 
structed in  a  way  to  invite  the  confidence  of  business  men,  so 
that  they  have  become  the  basis  of  commercial  transactions  in 
all  the  large  cities  of  the  country,  and  are  sold  in  open  market 
the  same  as  other  securities.  Although  neither  in  form  or  charac- 
ter negotiable  paper,  they  approximate  to  it  as  nearly  as  practi- 
cable.' 

1  Bank  v.  Lanier,  11  Wall.  369,  377,  per  Davis,  J. 
136 


AS   BETWEEN    THE   PARTIES   AND   THEIR   CREDITORS.     [§§  177,  178. 

VII.    Such  Transfers  as  hetiveen  the  Parties  and   their   Cred- 
itors. 

177.  "Whether  an  unregistered  transfer  passes  the  legal 
title  to  the  stock  as  well  as  the  equitable,  is  a  question  upon 
which  the  decisions  are  not  in  harmony.  This  question  is  one  of 
practical  importance,  because  upon  the  answer  to  this  depends 
the  sokition  of  the  practical  question  whether  such  a  transfer  is 
effectual  against  the  creditors  of  the  assignor  before  the  transfer 
is  recorded  upon  the  books  of  the  company.  If  the  legal  as  well 
as  the  equitable  title  passes  by  a  delivery  of  the  certificate,  with 
a  power  of  transfer,  then  of  course  the  stock  is  not  subject  as  the 
property  of  the  assignor  to  attachment  or  levy  of  execution. 
But  if  such  a  transfer  passes  only  the  equitable  title,  while  this 
may  be  good  as  between  the  parties,  it  is  not  good  as  against 
creditors  of  the  assignor  until  the  transfer  is  registered  upon 
the  books  of  the  corporation,  or  at  least  until  notice  has  been 
given  it  of  such  transfer. 

178.  What  is  the  eflfect  of  a  sale  of  stock  on  execution 
against  the  registered  owner,  and  the  issuing  of  a  certificate 
by  the  corporation  to  the  purchaser  at  such  sale  without  notice 
that  the  registered  owner  had  already  transferred  his  certificate 
in  pledge  for  a  loan  ?  Such  a  case  was  before  the  Circuit  Court 
of  the  United  States  for  the  Southern  District  of  New  York, 
which  lield  that  the  corporation  was  not  liable  for  the  value  of 
the  stock  to  the  prior  pledgee  of  the  certificate.  Stock  of  a  bank 
in  Connecticut  was  registered  in  the  name  of  a  resident  of  New 
York,  who  pledged  it  to  a  bank  in  the  latter  state  for  a  loan 
made  to  him  by  an  unregistered  transfer  of  the  certificate.  A 
creditor  of  the  registered  owner  attached  the  stock  and  sold  it  on 
execution  in  proceedings  regularly  conducted  in  Connecticut. 
The  stock  was  by  the  terms  of  the  certificate  "  transferable  at 
the  bank,  in  person  or  by  attorney."  These  words  were  held 
to  mean  that  tlie  stock  was  transferable  only  at  the  bank  ;  and 
the  transfer  of  tlie  certificate  was  held  not  to  operate  as  a  trans- 
fer of  the  stock,  except  as  against  the  registered  owner.  The 
pledgee  could  obtain  a  valid  title  to  the  stock,  except  as  against 
the  pledgor,  only  by  having  it  transferred,  or,  at  least,  by  giving 
notice  to  the  corporation  of  the  transfer  of  the  stock  before  it 

137 


§  179.]         PLEDGES  OF  CORPORATE  STOCKS. 

was  sold  on  execution,  and  a  new  certificate  issued  to  the  pur- 
chaser.^ 

But  while  in  some  states  a  requirement  by  by-law  of  the 
corporation  that  stock  shall  be  transferred  only  upon  the  books 
of  the  corporation  is  deemed  sufficient  to  make  that  mode  ex- 
clusive except  as  between  the  parties  themselves,  in  other  states 
nothing  less  than  a  provision  of  the  company's  charter,  having 
the  force  of  a  public  statute,  is  deemed  sufficient  to  prevent  an 
unregistered  transfer  from  being  complete  and  effectual  against 
every  one  but  the  corporation  itself. 

179.  As  against  creditors  attaching  stock  with  knowledge 
of  a  prior  assignment  of  the  equitable  title  by  a  transfer  of  the 
certificate,  there  is  no  doubt  that  such  equitable  transfer  will 
prevail.2  Mr.  Justice  Story  upon  this  point  said  :  ^  "  Courts  of 
law,  as  well  as  courts  of  equity,  are  constantly,  in  all  states 
where  the  common  law  prevails,  in  the  habit  of  holding  a  prior 
assignment  of  the  equitable  interest  in  stock,  as  superseding  the 
rights  of  attaching  creditors,  who  attach  the  same  with  a  full 
knowledge  of  the  assignment."  It  is  immaterial  in  such  case 
that  the  charter  of  the  corporation  provides  that  no  transfer  of 
stock  shall  be  valid  until  it  is  entered  or  registered  in  a  book  to 
be  kept  by  the  corporation  for  that  purpose."  This  is  manifestly 
a  regulation  designed  for  the  security  of  the  corporation  itself, 
and  of  third  persons  taking  transfers  of  the  stock  without  notice 
of  any  prior  equitable  transfer.  It  relates  to  the  transfer  of  the 
legal  title,  and  not  of  any  equitable  interest  in  the  stock  sub- 
ordinate to  that  title."  And  so  a  judgment  creditor  buying 
stock  at  an  execution  sale,  which  he  then  knows  has  been  pre- 
viously transferred  by  an  unrecorded  assignment  of  the  debtor, 
acquires  no  better  title  than  the  debtor  himself  had.^ 

The  mere  fact  that  a  certificate  of  stock,  when  offered  in 
pledge,  is  in  the  name  of  another  person,    is  not  sufficient  to 

^  Williams  v.  Mechanics'  Bank  of  the  shares.     Bank  of  America  v.  Mc- 

New  Haven,  5  Blatchf,  59.  Neil,  10  Bush  (Ky.),  54  ;  Conant  v. 

2  Black  V.  Zacharie,  3  How.  483,  Reed,  1  Ohio  St.  298. 

512;  Scripture  v.   Soapstone  Co.    50  ^  Black  v.  Zacharie,  supra. 

N.  H.    571.      A  coi-poration    cannot  *  Newberry  v.  Detroit  &  Lake  Su- 

acquire  a  lien   upon  the  shares  of  a  perior    Iron    Manufacturing   Co.    17 

stockholder  of  record  after  receiving  Mich.  141;  Weston  r.  Bear  River  Co. 

notice  of  an  equitable  assignment  of  6  Cal.  425. 

138 


AS   BETWEEN   THE   PARTIES   AND   THEIR   CREDITORS.     [§§  180,  181. 

charge  the  pledgee  with  notice  that  the  stock  belongs  to  the 
person  in  whose  name  it  stands,  when  the  latter  has  made  an 
assignment  of  the  certificate  in  blank,  or  has  delivered  it  with  a 
power  of  attorney  in  blank.^ 

Such  a  transfer  is  moreover  complete  as  against  a  creditor  of 
the  pledgor  when  the  corporation  has  unjustly  refused  to  make 
the  transfer  on  its  books,  and  the  creditor  without  notice  of  the 
transfer  has  attached  the  stock.^ 

180.  As  already  intimated,  transfers  of  stock  are  in  many- 
states  regulated  by  statute.  These  statutes  are  quite  dissimi- 
lar in  their  terms.  They  were  not  all  enacted  for  the  same 
purpose.  In  some  states  transfers  are  made  invalid  except  as 
between  the  parties,  unless  recorded  upon  the  books  of  the  cor- 
poration ;  while  in  other  states  transfers  by  indorsement  and  de- 
livery of  the  certificates,  are  made  valid,  not  only  between  the 
parties,  but  as  against  attaching  creditors  and  the  corporation 
itself.  Conflicting  decisions  in  different  states  are  in  many  cases 
to  be  accounted  for  by  dissimilar  statutes  with  reference  to  which 
these  decisions  were  made ;  though  it  is  true  that  the  decisions 
upon  transfers  of  stock  and  their  effect  cannot  always  be  recon- 
ciled in  this  way.  Similar  provisions  are  not  always  construed 
in  the  same  way.  It  is  necessary,  therefore,  in  order  to  determine 
the  validity  and  effect  of  transfers  of  stock  in  the  different  states, 
to  examine  the  statutes  as  well  as  the  decisions  of  these  states. 
For  this  reason  the  statutes  relating  to  transfers  of  stock  which 
have  been  enacted  in  several  states,  and  the  judicial  interpre- 
tations of  these  statutes  are  stated  in  detail  for  the  several  states. 

181.  Alabama.3  —  When,  by  the  charter,  articles  of  associa- 
tion, or  by-laws  and  regulations  of  an  incorporated  company,  the 
transfer  of  the  stock  is  required  to  be  made  upon  the  book  or 
books  of  such  company,  no  transfer  of  stocks  shall  be  valid  as 
against  bond  fide  creditors  or  subsequent  purchasers  without 
notice,  except  from  the  time  that  such  transfer  shall  have  been 
registered  or  made  upon  the  book  or  books  of  such  company. 
When  any  incorporated  company  does  not  by  its  charter,  by-laws, 

1  Folt  V.  Ileye,  23  How.  (N.  Y.)  ards,  6  Mo.  App.  454  ;  Stranfje  v.  H. 
P""-  3-^9.  &  T.  C.  R.  R.  Co.  fyS  Tex.  icl 

«  Merchants'   Nat.    Bank  v.   Rich-         »  Qq^q  i^76,  §§  2013,  2014. 

139 


§§  182,  183.]  PLEDGES   OF   CORPORATE   STOCKS. 

or  otherwise  require  the  transfer  of  its  stock  to  be  made  or  regis- 
tered on  the  books  of  the  company,  such  company  must  forthwith 
make  such  provision ;  and  persons  holding  stocks  not  so  trans- 
ferred or  registered,  or  holding  any  stock  under  hypothecation, 
mortgage,  or  other  lien,  must  have  the  transfer,  hypothecation 
mortgage,  or  other  lien,  made  or  registered  on  the  books  of  the 
company,  or  upon  failing  to  do  so  within  fifteen  days,  all  such 
transfers,  hypothecations,  mortgages,  or  other  liens,  shall  be  void 
as  to  lond  fide  creditors,  or  subsequent  purchasers  without  notice. 
In  this  state  it  is  held  that  the  by-laws  of  a  corporation  re- 
quiring transfers  of  stock  to  be  entered  on  its  books  in  the  pres- 
ence of  its  president  or  secretary,  and  declaring  a  lien  in  favor 
of  the  corporation  for  all  debts  of  the  stockholder  to  it,  are  in- 
tended for  the  protection  of  the  corporation,  and  of  third  per- 
sons who  may  in  good  faith  acquire  its  stock  ;  but,  while  the 
legal  title  to  stock  can  only  be  acquired  by  a  transfer  made  in 
the  mode  prescribed,  a  complete  equitable  title  may  be  acquired 
by  a  transfer  in  any  form  or  manner  appropriate  to  pass  property 
of  this  kind,  divesting  the  stockholder  of  all  right  and  interest, 
and  entitling  the  transferree  to  demand  that  he  be  invested  with 
the  legal  title.^  The  statute  makes  unregistered  transfers  void 
as  against  bond  fide  creditors  and  purchasers  without  notice. 

182.  Arkansas.  —  Stock  shall  be  deemed  personal  property, 
and  shall  be  transferred  only  on  the  books  of  the  corporation, 
in  such  form  as  the  directors  shall  prescribe ;  and  the  corpo- 
ration shall  at  all  times  have  a  lien  upon  all  the  stock  or  prop- 
erty of  its  members  invested  therein,  for  all  debts  due  from  them 
to  the  corporation.^ 

183.  Calif ornia.3  —  Whenever  the  capital  stock  of  any  cor- 

^  Planters'  &  Merchants'  Mut.  Ins.  fer  of  shares  of  private  corporations. 
Co.  V.  Selma  Sav.  Bank,  63  Ala.  585  ;  Winter  v.  Belmont  Mining  Co.  53  Cal. 
Duke  V.  Cahawba  Co.  Nav.  Co.  10  428,  431,  per  Crockett,  J. 
■A-la.  82.  A  mortgage  of  shares  of  stock  is 
2  Dig.  1874,  c.  72,  §  8348.  valid  without  a  transfer  on  the  books 
*  Codes  and  Stats.  1876,  §  5324  ;  of  the  company,  as  is  required  by  Act 
§  324  of  Civil  Code.  This  provision  of  1853,  relative  to  pledges  of  stock  by 
is  substantially  a  reenactment  of  the  .delivery  of  certificates.  Ede  v.  John- 
provisions  of  the  Corporation  Acts  of  son,  15  Cal.  53. 
1850  and  1853,  regulating  the  trans- 

140 


AS   BETWEEN   THE  PARTIES   AND   THEIR   CREDITORS.       [§  183. 

jDoration  is  divided  into  shares,  and  certificates  therefor  are  is- 
sued, such  shares  of  stock  are  personal  property  and  may  be 
transferred  by  indorsement  by  the  signature  of  the  proprietor,  or 
his  attorney  or  legal  representative,  and  delivery  of  the  certifi- 
cate ;  but  such  transfer  is  not  valid  except  between  the  parties 
thereto,  until  the  same  is  so  entered  upon  the  books  of  the  cor- 
poration, as  to  show  the  names  of  the  parties  by  and  to  whom 
transferred,  the  number  or  designation  of  the  shares,  and  the 
date  of  the  transfer. 

The  courts  construing  this  provision  have  held  that  althouo-h 
stock  may  be  attached  as  the  property  of  the  registered  owner, 
after  the  certificate  has  been  pledged  by  him,  yet  if  the  pur- 
chaser at  the  execution  sale  buys  with  notice  of  the  prior  hypoth- 
ecation, he  acquires  no  rights  as  against  the  pledgee  ;  If  on  the 
other  hand  the  purchaser  has  no  notice  of  the  prior  hypotheca- 
tion, his  title  will  prevail  against  the  pledgee.^  The  provisions 
of  the  statute,  in  the  language  of  the  court,  apply  only  to  trans- 
fers and  purchases  in  good  faith  without  notice.  The  result  is 
that  while  an  assignment  of  shares  of  stock  by  a  mere  delivery 
of  the  certificate  without  a  transfer  upon  the  books  of  the  cor- 
poration, is  invalid  as  against  an  attaching  creditor  of  the  regis- 
tered owner,  yet  the  rights  of  the  latter  may  be  defeated  by  giv- 
ing him  notice  of  such  prior  transfer  of  the  certificate  after  his 
lien  has  attached,  or  by  giving  bidders  at  the  sale  such  notice. 
This  illogical  construction,  though  not  fully  approved  by  later 
cases,  has  been  acquiesced  in  upon  the  principle  of  stare  decisis.'^ 
As  against  all  the  world  except  subsequent  purchasers  and  at- 

^  Weston   V.  Bear  River  and  Au-  was  not  called  to  the  foregoing  deci- 

burn  Water  and  Mining  Co.  5   Cal.  sions,  nor  to  the  statute  regulating  the 

186;  S.  C.  6  Cal.  425;  Strout  v.  Na-  transfer  of  stocks  in  private  corpora- 

toma  Water  and  Mining  Co.  0  Cal.  tions.     Without  referring  to  these  de- 

''^-  cisions  or  to  the  statute  on  which  they 

2  Naglee  v.  Pacific  Wharf  Co.  20  were  founded,  counsel  in  the  Sher- 
Cal.  529,  533;  People  v.  Elmore,  35  wood  case  discussed  the  sole  proposi- 
Cal.  653  ;  Winter  v.  Belmont  Mining  tion  whether  a  certificate  of  this  char- 
Co.  53  Cal.  428,  432.  And  see  Brew-  acter,  on  general  principles  of  com- 
8ter  r.  Sime,  42  Cal.  139;  Thompson  mercial  law,  was  negotiable  in  the 
V.  Toland,  48  Cal.  99,  112.  sense  in  which  bills  of  exchange  and 

In  Winter  v.  Belmont  Mining  Co.  other   similar  instruments   are   nego- 

supra,     Crockett,    J.    said:  "In    the  tiable,   and   we  held    they  were   not, 

case  of  Sherwood  v.  Meadow  Valley  which  was  the  only  point  decided  in 

Mining  Co.  50  Cal.  412,  our  attention  that  case." 

141 


§§  184,  185.]    PLEDGES  OF  CORPORATE  STOCKS. 

taching  creditors  without  notice,  a  transfer  not  entered  upon  the 
books  is  valid.^  * 

184.  Colorado. 2  —  Corporations  other  than  railroad  and  tele- 
graph companies,  are  required  to  keep  a  book  containing  the 
names  of  stockholders  and  the  number  of  shares  held  by  them, 
open  for  the  inspection  of  the  stockholders  and  creditors  of  the 
company  ;  and  no  transfer  of  stock  shall  be  valid  for  any  purpose 
whatever,  except  to  render  the  person  to  whom  it  shall  be  trans- 
ferred liable  for  the  debts  of  the  company,  unless  it  shall  have 
been  entered  upon  such  book,  within  sixty  days  from  the  date  of 
such  transfer,  by  an  entry  showing  to  and  from  whom  transferred. 

185.  Connecticut.^ — Shares  of  stock  in  any  corporation  or- 
ganized in  this  state  under  the  laws  of  this  state,  or  of  the  United 
States,  may  be  pledged  by  executing  and  delivering  a  power  of 
attorney  for  its  transfer,  with  the  certificate  of  stock  therein  men- 
tioned, to  the  party  to  whom  the  pledge  is  made ;  but  no  such 
pledge,  unless  consummated  by  an  actual  transfer  of  the  stock  to 
the  name  of  such  party,  shall  be  effectual  to  hold  such  stock 
against  any  person  but  the  pledgor,  and  his  executors  and  ad- 
ministrators, until  a  copy  of  said  power  of  attorney  shall  be  filed 
with  the  cashier,  treasurer  or  secretary  of  said  corporation. 

A  pledge  of  stock  is  ineffectual  where  a  certificate  is  merely 
handed  over  without  a  power  to  transfer  the  stock,  although 
there  be  a  written  declaration  attached  to  the  certificate,  that  the 
stock  was  thereby  pledged  for  a  debt  described.* 

Before  the  passage  of  this  statute  it  was  held  in  actions  at  law 
that  the  legal  title  to  stock  in  a  corporation  could  be  transferred 
only  in  the  mode  prescribed  by  the  company's  charter  or  by  its 
by-laws ;  and  if  the  stock  was  made,  transferable  only  on  the 
books  of  the  corporation,  a  transfer  upon  the  books  was  essential, 
not  merely  as  giving  notice,  but  as  the  ,act  itself  which  changes 
the  title  ;  ^  so  that  even  an  entry  by  the  clerk  of  the  corporation 
upon  the  deed  of  assignment  that  it  has  been  received  for  record 

1  Parrott  v.  Byers,  40  Cal.  614.  *  pj^tt  v.  Hawkins,  43  Conn.  139; 

2  G.  L.  1877,  p.  154,  §  222.  and    see    Dutton  v.   Conn.   Bank,   13 

3  G.  S.  1876,  279,  §  9;  Pub.  Acts  Conn.  493;  Shipman  r.  ^tna  Ins.  Co. 
1871,  c.  15.     See  First  Nat.  Bank  v.  29  Conn.  245. 

Hartford  Life  and   Annuity  Ins.  Co.         ^  Marlborough   Manufacturing   Co. 
45  Conn.  22.  v.  Smith,  2    Conn.  579;  Northrop  v. 

142 


AS  BETWEEN   THE   PARTIES  AND   THEIR   CREDITORS.     [§§  186,  187. 

was  not  sufficient  to  protect  the  stock  from  attachment  as  the 
property  of  the  assignor.^ 

But  in  equity  the  structure  of  this  rule  at  law  was  somewhat 
modified.  If  a  good  reason  for  failure  of  an  assignee  of  stock  to 
procure  a  transfer  on  the  books  of  a  corporation  could  be  shown, 
and  he  had  done  all  that  it  was  possible  for  him  to  do  by  giving 
notice  of  the  assignment  to  the  corporation,  he  was  protected 
against  subsequent  attachments  of  the  stock  as  the  property  of 
the  assignor.  It  was  said  that  the  ground  upon  which  stock  sold 
but  not  legally  transferred  was  open  to  attachment  by  the  credi- 
tors of  the  vendor,  was  the  same  as  that  upon  which  personal 
chattels  sold,  but  retained  in  the  possession  of  the  vendor,  are  li- 
able to  attachment  as  the  property  of  the  latter  ;  and  that  the 
same  circumstances  which  would  excuse  failure  to  take  possession 
in  the  one  case,  would  excuse  a  failure  to  perfect  the  transfer  in 
the  other.  Therefore  where  a  secretary  of  a  company  refused  to 
allow  a  transfer  of  shares  upon  the  company's  books  because  the 
shares  were  already  subject  to  attachment,  and  the  owner  made 
in  good  faith  a  written  assignment  of  the  stock,  and  lodged  the 
instrument  with  the  company,  it  was  held  that  the  title  of  the 
vendee  was  good  against  later  attachments  of  the  stock  by  the 
vendor's  creditors.^ 

186.  Dakota  Territory.^  —  Whenever  the  capital  stock  of 
any  corporation  is  divided  into  shares,  and  certificates  therefor 
are  issued,  such  shares  of  stock  are  personal  property,  and  may 
be  transferred  by  indorsement  by  the  signature  of  the  proprietor, 
or  his  attorney  or  legal  representative,  and  delivery  of  the  certifi- 
cate ;  but  such  transfer  is  not  valid,  except  between  the  parties 
thereto,  until  the  same  is  so  entered  upon  the  books  of  the  corpo- 
ration as  to  show  the  names  of  the  parties  by  and  to  whom  trans- 
ferred, the  number,  designation  of  the  shares,  and  the  date  of  the 
transfer. 

187.  District  of  Columbia.*  —  No  transfer  of  stock  shall  be 
valid  for  any  purposes  whatsoever,  except  to  render  the  person 

Curtis.  5  Conn.  21C;  Oxford  Turnpike  ^  Colt  i'.  Ives,  31  Conn.  25. 

Co.  u.  I'.iziincl,  C  Conn.  .'■>52;  Dutton  y.  »  U.    Code,    1877,    §    308    of    Civil 

Conn.  Bank,  13  Conn.  493,  498;  Sliip-  Code. 

man  i:  yEtna  Ins.  Co.  29  Conn.  245.  *  K.  S.  1875,  p.  70,  §  581. 

'   Nortlirop  v.  Newton  &  liridj^eport 

Turnpike  Co.  3  Conn.  544.  143 


§§  188-190.]  PLEDGES   OF   CORPORATE   STOCKS. 

to  whom  it  shall  be  transferred  liable  for  the  debts  of  the  com- 
pany, until  it  shall  have "  been  entered,  in  a  book  to  be  kept  by 
the  treasurer  or  secretary  thereof,  by  an  entry  showing  to  and 
from  whom  transferred. 

188.  Florida.^  —  The  stock  of  every  corporation  shall  be 
deemed  personal  estate,  and  shall  be  transferable  in  the  manner 
prescribed  in  the  by-laws  or  regulations  of  the  company  ;  but  no 
shares  shall  be  transferred  until  all  previous  assessments  thereon 
have  been  fully  paid  in. 

189.  Idaho  Territory.^  —  The  stock  of  the  company  shall  be 
deemed  personal  estate,  and  shall  be  transferable  in  such  manner 
as  shall  be  prescribed  by  the  by-laws  of  the  company ;  but  no 
transfer  shall  be  valid  except  between  the  parties  thereto,  until 
the  same  shall  have  been  so  entered  on  the  books  of  the  com- 
pany as  to  show  the  names  of  the  parties  by  and  to  whom  trans- 
ferred, the  number  and  designation  of  the  same,  and  the  date  of 
the  transfer. 

Any  stockholder  may  pledge  his  stock  by  a  delivery  of  his 
certificate  or  other  evidence  of  his  interest,  but  may  nevertheless 
represent  the  same  at  all  meetings,  and  vote  accordingly,  as  a 
stockholder. 

190.  In  Illinois  it  is  held  that  a  transfer  in  pledge  of  certifi- 
cates of  stock  in  a  company,  whose  by-laws  provide  that  a  transfer 
of  stock  shall  only  be  made  upon  the  books  of  the  secretary  on 
the  presentation  of  the  stock  certificate,  is  not  effectual  as  against 
a  levy  of  execution  by  a  creditor  of  the  pledgor,  made  before  the 
pledgee  has  obtained  a  transfer  to  himself  upon  the  company's 
books.  The  decision  is  partly  based  upon  a  requirement  of 
statute,  that,  in  levying  upon  the  shares  of  a  stockholder,  the 
sheriff  shall  leave  with  the  clerk,  treasurer,  or  cashier  of  the 
company  a  copy  of  the  execution  ;  for  it  is  argued  that,  unless 
the  books  of  the  company  determine  who  is  the  owner  of  the 
stock,  this  provision  would  be  useless.^ 

1  Bush's  Digest  1872,  p.  169,  §  20  ;         ^  People's    Bank    v.     Gridley,    11 
Dig.  Laws,  1881,  p.  231,  §  15.  Chicago  L.  N.  332. 

2  R.  Laws  1875,  jjp.   621,  622,  §§ 
9,12. 

14i 


AS  BETWEEN   THE  PARTIES  AND  THEIR    CREDITORS.      [§§191-193. 

191.  lowa.i  —  A  transfer  of  shares  is  not  valid  except  as  be- 
tween the  parties  thereto,  until  it  is  regularly  entered  on  the 
books  of  the  company,  so  as  to  show  the  name  of  the  person  by 
and  to  whom  transferred,  the  numbers  or  other  designation  of 
the  shares,  and  the  date  of  the  transfer ;  but  such  transfer  shall 
not  in  any  way  exempt  the  person  making  it  from  any  liability 
of  said  corporation  created  prior  thereto.  The  books  of  the 
company  must  be  so  kept  as  to  show  intelligibly  the  original 
stockholders,  their  respective  interests,  the  amount  paid  on  their 
shares,  and  all  transfers  thereof  ;  and  such  books,  or  a  correct 
copy  thereof,  so  far  as  the  items  mentioned  in  this  section  are 
concerned,  shall  be  subject  to  the  inspection  of  any  person  desir- 
ing the  same. 

192.  Kansas.^  —  The  stock  of  any  corporation  created  under 
the  general  corporation  law  is  deemed  personal  estate,  and  is 
transferable  only  on  the  books  of  the  corporation,  in  such 
manner  as  the  by-laws  may  prescribe ;  and  no  person,  at  any 
election,  is  entitled  to  vote  on  any  stock,  unless  the  same  shall 
have  been  standing  in  the  name  of  the  person  so  claiming  to 
vote,  upon  the  books  of  the  corporation,  at  least  thirty  days 
prior  to  such  election  ;  but  no  shai-es  shall  be  transferred  until 
all  previous  assessments  thereon  shall  be  fully  paid. 

193.  In  Louisiana  it  is  provided  by  the  code  that  notes,  bills 
of  exchange,  stocks,  or  obligations  or  claims  on  other  persons 
may  be  pledged  by  delivery  of  the  notes,  bills,  certificates  of 
stock,  or  other  evidences  of  the  claims  or  rights  so  pledged  ;  ^  and 
it  is  accordingly  held  that  shares  of  stock  cannot  be  pledged, 
unless  they  be  evidenced  by  certificates,  which  must  be  trans- 
ferred and  delivered  to  the  pledgee.*  It  seems  that  it  is  not 
essential  that  a  note  or  bill  payable  to  order  be  indorsed  by  the 
payee,  if  it  be  delivered,  and  the  pledge  be  made  by  notarial 
act.^ 

The  legal  title  to  stocks  in  corporations  whose  charters  provide 
that  transfers  shall  not  be  valid   and  effectual  until  registered 

1  Rev.  Code  1880,  p.  772,  §  1078.  ^  Ducasse  v.  Keyser,  28  La.  Ann. 

2  Laws  1879,  p.  220,  §  1000.  419.  The  statute  law  of  the  state 
8  Civ.  Code,  art.  5158.  left  this  matter  in  doubt.  Casey  v. 
*  Lallande  v.  Ingram,  19  La.  Ann.  La    Socidte    de    Credit    Mobilier,    2 

364.  Woods,  77,  83,  per  Woods,  J. 

10  145 


§  194.]  PLEDGES   OF   CORPORATE  STOCKS. 

upon  the  books  of  the  corporation,  does  not  pass  until  such 
requirement  is  complied  with ;  but  the  equitable  title  passes 
without  sugIi  registration.^  But  a  sale  or  pledge  of  the  stock  of 
an  incorporated  company  is  complete,  even  as  to  third  persons, 
by  the  delivery  to  the  vendee  or  pledgee  of  the  certificates  of 
stock,  with  a  power  of  attorney  to  transfer  it  on  the  books  of 
the  company ;  and  it  is  not  necessary  to  the  perfection  of  the 
sale  or  pledge,  or  to  protect  the  stock  from  seizure  by  the  ven- 
dor's creditors,  or  from  other  rights  of  third  persons  arising  sub- 
sequently to  the  sale  or  pledge,  that  notice  thereof  should  be 
given  to  the  corporation,  or  that  an  actual  transfer  of  the  stock 
be  made  on  the  books.^  Even  a  by-law  of  a  corporation  provid- 
ing that  its  stock  shall  not  be  transferred  while  the  holder  is 
indebted  to  the  corporation  does  not  prevent  an  effectual  pledge 
by  delivery  of  the  certificate.^ 

194.  Maine.4  —  When  the  capital  of  a  corporation  is  divided 
into  shares,  and  certificates  thereof  issued,  they  may  be  trans- 
ferred by  indorsement  and  delivery,  but  such  transfer  of  shares 
is  not  valid,  except  between  the  parties  thereto,  until  the  same 
is  so  entered  on  the  books  of  the  corporation  as  to  exhibit  the 
names  and  residences  of  the  parties,  the  number  of  shares,  and 
the  date  of  their  transfer. 

A  delivery  of  a  certificate  of  stock,  together  with  an  assign- 
ment and  blank  power  of  attorney  from  the  assignor,  does  not 
constitute  a  transfer  effectual  against  an  attachment  of  the  stock 
made  by  one  who  had  no  notice  of  the  transfer,  although  notice 
of  the  transfer  had  been  given  to  the  bank  before  the  attachment. 
No  transfer  of  stock  will  secure  it  from  attachment,  until  it  is 

1  Black  V.  Zacliarie,  3  How.  483.  The  corporation  when  about  to  permit 

2  Blouin  V.  Hart,  30  La.  Ann.  714;  a  debt  to  be  contracted  by  a  holder  of 
Smith  V.  Slaughter-house  Co.  30  La.  its  stock,  for  which  it  desires  the  pro- 
Ann.  1378;  Factors'  &  Traders' Ins.  tection  of  the  clause  in  its  charter, 
Co.  V.  Dry  Dock  Co.  31  lb.  149;  Pitot  may  secure  the  same  by  requiring  the 
V.  Johnson,  33  lb.  1286;  New  Orleans  holder  to  produce  his  certificates  of 
Nat.  Banking  Asso.  v.  Wiltz  (C.  C.  stock.  The  pledgee,  when  about  to 
La.  1881),  10  Fed.  Rep.  330.  advance  on  the  pledge  and  delivery  of 

3  Blouin  V.  Hart,  supra;  Pitot  v.  the  certificates,  may  apply  to  the  cor- 
Johnson,  supra.  Fenner,  J.,  said :  poration  for  information  as  to  the  in- 
"  Practically,  it  lies  within  the    power  debteduess  of  the  pledgor  to  it." 

of    either    party   to  protect  himself.         *  R.  S.  1871,  c.  4(),  §  11. 
146 


AS   BETWEEN    THE   PARTIES   AND    THEIR   CREDITORS.     [§§  195,  196. 

entered  upon  the  books  of  the  corporation  in  the  manner  pre- 
scribed by  the  statute.^ 

195.  Maryland.2  —  The  stock  of  any  corporation  shall  be 
deemed  personal  estate,  and  shall  be  transferable  as  shall  be  pre- 
scribed by  the  by-laws  of  the  corporation. 

196.  Massachusetts.^  —  No  sale,  assignment,  or  transfer  of 
stock  in  a  corporation  shall  affect  the  right  of  the  corporation  to 
pay  any  dividend  due  upon  the  same,  or  affect  the  title  or  rights 
of  an  attaching  creditor,  until  it  is  recorded  upon  the  books  of 
the  corporation  or  a  new  certificate  is  issued  to  the  person  to 
whom  it  has  been  transferred  ;  btit  no  attachment  of  such  stock 
as  the  property  of  the  vendor,  made  after  such  sale,  assignment, 
or  transfer,  shall  defeat  the  title  or  affect  the  rights  of  the  vendee, 
if  such  record  is  made  or  a  new  certificate  issued  within  ten 
days  after  such  transfer  is  made. 

Previous  to  the  enactment  of  this  statute  it  had  been  deter- 
mined by  the  Supreme  Court  of  the  state  that  a  sale  of  stock  in 
a  corporation  is  valid  against  a  subsequent  attaching  creditor  of 
the  seller,  although  no  transfer  of  stock  is  made  on  the  books  of 
the  corporation,  in  the  absence  of  an  express  provision  of  statute, 
or  of  the  charter  of  the  corporation,  requiring  such  transfer  to 
be  made.* 

When,  however,  the  charter  of  a  corporation,  and  not  merely 
its  by-laws,  provided  that  its  shares  should  "  be  transferable  only 
at  its  banking-house  and  on  its  books,"  it  had  been  held  that  the 
mode  of  transfer  pointed  out  by  the  company's  charter  was  the 
only  mode  of  passing  the  legal  title  to  its  shares,  or  of  transfer- 
ring the  attachable  interest  in  it.^    It  is  to  be  observed,  however, 

^  SkowLegan    Bank   v.    Cutler,   49  legal  title,  —  whether  it  occurs  when 

Me.  315.  the  instrument  of  transfer  is  received 

2  R.  Code  1878,  p.  322,  §  58.  for  record  by  the  clerk  of  the  corpora- 

'  P.  S.  1882,  c.   105,  §  24;   Act  of  tion,  which  seems  to  have   been    the 

1881,  c.  302,  §  1.  view  taken  in  Brown  v.  Adams,  5  Biss. 

*  Boston  Music  Hall  v.   Cory,   129  181,  or  whether  this  occurs  only  when 

Mass.  435  ;  Dickinson  v.  Central  Nut.  an  assignment  has  actually  been  made 

Bank,  129  Mass.  279.     See  §  160.  upon    the    company's    books.      Chief 

'  Fisher   v.    Essex   Bank,    5    Gray  Justice  Shaw,  upon  this  point,  said  : 

(Mass.),  373.  "  I  do  not  stop  to  ask  precisely  what 

One  of  the  questions  discussed   in  particular  act  would  constitute  such  a 

i  was  what  effects  a  change  of  transfer,  —  wliethcr  it  must  l)e  actu- 

147 


§  197.]  PLEDGES  OF  CORPORATE  STOCKS. 

that  this  decision  turns  upon  the  language  of  the  charter  of  the 
corporation  which  in  Massachusetts  is  regarded  as  a  public  act. 
In  an  earlier  case  in  this  state,  where  the  by-laws  of  a  corporation 
required  all  transfers  of  shares  to  be  made  on  the  books  of  the 
company  by  the  treasurer,  it  was  held  that  an  assignment  by 
deed,  accompanied  by  a  delivery  of  the  shares,  was  valid  without 
a  transfer  on  the  books  of  the  company,  not  onl}'^  as  between  the 
parties,  but  as  against  the  creditor  of  the  vendor  who  attached 
the  shares  before  any  notice  of  the  sale  had  been  given  to  him- 
self or  to  the  treasurer  of  the  company.^  And  in  a  recent  case 
in  this  state  this  distinction  between  a  requirement  of  the  charter 
and  a  requirement  of  the  by-laws  of  a  corporation  is  adopted  ; 
and  it  was  held  that  a  pledge  of  its  stock  by  delivery  of  the  cer- 
tificate with  a  power  of  attorney  authorizing  the  pledgee  to  trans- 
fer it,  was  good  as  against  the  pledgor's  assignee  in  bank- 
ruptcy, although  the  by-laws  of  the  corporation  provided  that  its 
stock  should  be  assignable  only  on  its  books. ^ 

197.  Michigan.^ —  Whenever  the  capital  stock  of  any  corpo- 
ration is  divided  into  shares,  and  certificates  thereof  are  issued, 
such  shares  may  be  transferred  by  indorsements  and  delivery  of 
the  certificates  thereof,  such  indorsements  being  by  the  signature 
of  the  proprietor,  or  his  attorney,  or  legal  representative ;  but 
such  transfer  shall  not  be  valid  except  between  the  parties  thereto, 

ally  entered  on  the  books,  or  wlietber  seem  to  us  to  be  going  beyond  the 
the  delivery  of  the  certificate  by  the  rules  of  just  exposition  to  hold  that  a 
holder  ready  to  transfer,  or  with  a  plain  provision  of  statute  laws,  calcu- 
written  transfer  executed,  so  that  lated  to  promote  the  seci»-ity  of  im- 
nothing  remains  but  the  mere  execu-  portant  legal  right  of  parties  in  im- 
tive  act  of  the  clerk,  is  sufficient.  In  portant  particulars,  should  be  con- 
either  case,  it  would  show  who  is  at  strued  to  be  a  regulation  made  for 
any  time  the  actual  owner  by  the  the  convenience  and  protection  of 
books,  and  inform  a  creditor,  or  other  banks." 

person  having  occasion  to  know  or  the  i  Sargent  v.  Essex  Ry.  Co.  9  Pick, 
right  to  inquire.  It  is  necessary  to  (Mass.)  202,  305  ;  Sargent  v.  Frank- 
fix  some  act,  and  some  point  of  time  lin  Ins.  Co.  8  lb.  90. 
at  which  the  property  changes  and  2  Dickinson  v.  Central  Nat.  Bank, 
vests  in  the  vendee  ;  and  it  will  tend  129  Mass.  279;  see  also  Sibley  v. 
to  the  security  of  all  parties  concerned  Quinsigamond  Nat.  Bank,  133  Mass. 
to  make  that  turning-point  consist  in  515. 

an  act  which,  whilst  it  may  be  easily  s  Compiled  Laws  1871,  c.  130,  §  7; 

proved,  does  at  the  same  time   give  Howell's  Annotated  Stats.  1882,  c.  191, 

notoriety  to   the  transfer.     It  would  §  7. 

148 


AS   BETWEEN  THE   PARTIES   AND   THEIR   CREDITORS.    [§§  198,  199. 

until  the  same  shall  have  been  so  entered  on  the  books  of  the 
corporation  as  to  show  the  names  of  the  parties  by  and  to  whom 
transferred,  the  number  and  designation  of  the  shares,  and  the 
date  of  the  transfer. 

The  last  clause  of  this  statute  is  declared  to  be  for  the  protec- 
tion of  parties  having  equities.  It  is  accordingly  held  that  a 
judgment  creditor  buying  at  an  execution  sale  with  knowledge  of 
a  prior  transfer  of  the  stock  by  the  debtor,  whether  such  transfer 
be  recorded  or  not,  obtains  no  better  title  than  his  debtor  had.i 

198.  Minnesota.2  —  The  transfer  of  shares  is  not  valid,  except 
as  between  the  parties  thereto,  until  it  is  regularly  entered  on  the 
books  of  the  company,  so  far  as  to  show  the  names  of  the  persons 
by  and  to  whom  transferred,  the  numbers  or  other  designation  of 
the  shares,  and  the  date  of  the  transfer ;  but  such  transfer  shall 
not  in  any  way  exempt  the  person  making  such  transfer  from 
any  liabilities  of  said  corporation  which  were  created  prior  to 
such  transfer.  The  books  of  the  company  shall  be  so  kept  as  to 
show  intelligibly  the  original  stockholders  their  respective  inter- 
ests, the  amount  which  has  been  paid  in  on  their  shares,  and  all 
transfers  thereof ;  and  such  books,  or  a  correct  cop}^  thereof,  so 
far  as  the  items  mentioned  in  this  section  are  concerned,  shall  be 
subject  to  the  inspection  of  any  person  desiring  the  same. 

A  statutory  provision  that  stock  of  a  corporation  shall  be  trans- 
ferable only  on  the  books  of  the  corporation,  in  such  form  as  the 
directors  may  prescribe,  is  held  to  be  intended  solely  for  the  pro- 
tection and  benefit  of  the  corporation.  It  does  not  incapacitate 
a  shareholder  from  transferring  his  stock,  in  pledge  or  otherwise, 
without  any  entry  upon  the  corporation  books.  Except  as 
against  the  corporation,  the  owner  and  holder  of  shares  of  stock 
may,  as  an  incident  of  his  right  of  property,  transfer  them  in  the 
same  way  that  he  may  transfer  any  other  personal  property  of 
which  he  is  owner.^ 

199.  Mississippi.^  —  Stock  in  all  joint  stock  corporations  is 

1  Newbury  v.  Detroit  &  Lake  Su-  2  q   g   ij^y,^^  p_  scf),  §  8. 

perior  Iron    Co.  17    Mich,  141.     See  »  Baldwin  r.  Canfield,  2«  Minn.  43. 

Wiilkeri;.  Detroit  Transit  Ky.  Co.  47  *  II.   Code   1871,  §  2413;  R.  Code 

Mich,    338  ;     Mandlehainn    v.    North  1880,  §  1037. 
American  Mining  Co.  4  Mich.  465. 

149 


§§  200-202.]    PLEDGES  OF  CORPORATE  STOCKS. 

transferable  by  the  indorsement  and  delivery  of  tbe  stock  certifi- 
cate, and  the  registry  of  such  transfer  in  tbe  books  of  the  com- 
pany. 

200.  In  Missouri^  it  is  provided  by  statute  that  tbe  stock  of 
every  company  formed  under  tbe  general  corporation  act  shall  be 
deemed  personal  estate,  and  shall  be  transferable  in  the  manner 
prescribed  by  the  by-laws  of  the  company  ;  but  no  shares  shall 
be  transferred  until  all  previous  calls  thereon  shall  have  been 
fully  paid  in. 

It  is  held  that  inasmuch  as  the  statute  does  not  restrict  the 
transfer  of  stock  to  a  particular  mode,  a  transfer  by  delivery  of  a 
certificate  with  a  power  to  transfer,  is  sufiicient  not  only  as  be- 
tween the  parties  themselves,  but  also  as  against  creditors  of  the 
assignor  who  have  seized  the  shares  after  such  transfer,  and  be- 
fore the  transfer  has  been  entered  upon  the  books  of  the  corpora- 
tion .^ 

201.  Montana  Territory.^  —  The  stock  of  a  corporation  is 
deemed  personal  property  and  is  transferable  in  such  manner  as 
is  prescribed  by  the  by-laws  of  the  company  ;  but  no  transfer  is 
valid  except  as  between  the  parties  thereto,  until  the  same  is  so 
entered  upon  the  books  of  the  company  as  to  show  the  names  of 
the  parties  by  and  to  whom  transferred,  the  numbers  and  desig- 
nation of  the  shares,  and  the  date  of  the  transfer. 

202.  New  Hampshire.*  —  Shares  may  be  transferred  by  the 
proprietor,  by  writing  by  him  signed  on  the  back  of  the  certifi- 
cate, or  by  a  deed  under  seal,  recorded  by  the  treasurer,  cashier, 
or  clerk,  in  a  book  kept  by  him  for  that  purpose ;  and  the  pur- 
chaser, on  producing  and  delivering  to  the  cashier  or  treasurer 
the  former  certificate  and  the  transfer  thereon  or  deed  thereof, 
with  a  certificate  thereon  that  the  same  are  duly  recorded  in  the 
proper  office,  and  at  what  time,  shall  be  entitled  to  a  new  certifi- 
cate of  the  date  of  such  record,  if  no  prior  lien  then  existed 
thereon. 

1  R.  S.  1879,  §§  739,  714.  8  Laws  1872,  p.  408,  §  10. 

2  Merchants'  Nat.  Bank  v.  Rich-  *  Gen.  Laws  1878,  p.  355,  §§  11, 
ards,  74  Mo.  77  ;  affirming  S.  C.  6  Mo.     12. 

App.  454. 

150 


AS   BETWEEN   THE  PARTIES   AND   THEIR   CREDITORS.        [§  202. 

In  transfers  of  stock  as  collateral  security,  the  debt  or  duty  to 
be  secured  shall  be  substantially  described  in  the  instrument  of 
transfer  ;  and  the  certificate  issued  to  the  holder  of  the  stock  as 
collateral  security  shall  express  that  it  is  so  holden,  for  whose 
debt,  and  to  what  amount.  The  pledgor  of  stock  transferred  as 
collateral  security  shall  be  regarded  as  the  general  owner,  and 
be  entitled  to  the  rights  and  subject  to  the  liabilities  of  the  stock- 
holder notwithstanding  such  transfer. 

No  person  holding  stock  as  executor,  administrator,  guardian, 
or  trustee,  and  no  person  holding  stock  as  collateral  security, 
shall  be  thereby  personally  subject  to  any  liabilities  as  a  stock- 
holder ;  but  the  person  pledging  such  stock  shall  be  so  liable  ; 
and  the  estate  and  funds  in  the  hands  of  such  executor,  adminis- 
trator, guardian,  or  trustee  shall  be  liable  to  the  same  extent  as  a 
holder  thereof  in  his  own  right  would  be  liable. ^ 

In  this  state  it  is  held  that  a  transfer  upon  the  books  of  the 
corporation  is  requisite  to  make  a  pledge  of  stock  effectual 
against  creditors  of  the  pledgor,  although  there  be  nothing  either 
in  the  charter  or  by-laws  of  the  corporation  prescribing  or  regu- 
lating the  mode  of  making  a  transfer.^ 

A  transfer  agent  is  sometimes  appointed  to  act  at  a  distance 
from  the  office  of  the  corporation  in  which  its  records  are  kept. 
He  may  have  authority  to  receive  old  certificates  and  issue  new 
ones ;  but  the  transfer  is  not  ordinarily  complete  till  he  has  sent 
proper  evidence  of  it  to  the  keeper  of  the  stock  record  at  the 

1  Gen.  Laws  1878,  p.  358,  §  IS.  or  bill  of  exchange  it  be  retained  by 

2  Pinkerton  v.  Manchester  &  Law-  the  assignor,  a  subsequent  purchaser 
rence  11.  R.  Co.  42  N.  H.  424 ;  S.  C.  without  notice  would  acquire  a  good 
1  Am.  L.  Reg.  (N.  S.)  96,  and  note  title.  Indeed,  it  may  be  laid  down 
by  Redfield.  The  certificates  issued  as  a  general  principle  governing  the 
by  the  corporation  were  expressed  to  transfer  of  every  species  of  personal 
be  transferable  by  assignment  on  the  property,  that,  to  be  good  against  in- 
books  of  the  corporation.  "We  are  nocent  third  persons,  such  transfer 
aware,"  say  the  court  rendering  this  must  be  accompanied  with  such 
decision,  "that  choses  in  action  may  change  of  possession  and  indications 
be  transferred  by  a  simple  delivery  of  of  ownership  as  the  nature  of  the 
the  evidences  of  indebtedness,  with  an  thing  is  capable  of ;  otherwise,  the 
indorsement  thereon,  in  certain  cases;  seller  is  enabled,  by  means  of  an  ap- 
but  it  will  be  observed  that,  in  these  parent  ownership,  to  obtain  a  fictitious 
cases,  all  such  changes  in  the  indica-  credit,  and  to  deceive  both  creditors 
tions  of  ownership,  as  the  nature  of  and  purchasers."  See,  also,  Scripture 
the  case  will  admit,  are  recjuired.  If,  v.  Soapstone  Co.  50  N.  II.  571. 
therefore,  upon  the  transfer  of  a  bond 

151 


§  203.]  PLEDGES   OF   CORPORATE   STOCKS. 

home  office  of  the  corpoi'ation.  If  such  evidence  be  transmitted 
by  the  earliest  mail,  it  would  seem  that  the  transfer  would  be 
effectual,  though  an  attachment  had  intervened.  But  if  a  cred- 
itor taking  stock  as  collateral  security  do  not  use  due  diligence 
in  obtaining  a  proper  transfer  of  the  stock,  an  intervening  attach- 
ment will  take  precedence.^  "  It  seems  too  clear  for  argument," 
say  the  Supreme  Court,^  "  that  the  ownership  of  the  shares 
passes  from  the  seller  to  the  buyer  by  force  of  the  contract  of 
sale,  and  not  by  operation  of  law  ;  and  if  that  be  so,  the  buyer's 
title,  so  far  as  the  seller  is  concerned,  attaches  the  moment  this 
contract  is  fully  consummated  between  them.  This  kind  of  prop- 
ert}^,  being  an  intangible  right,  somewhat  akin  to  the  right  to 
receive  money  due  upon  a  bond  or  other  chose  in  action  is  inca- 
pable of  actual  manual  delivery.  All  the  seller  can  do,  that  cor- 
responds at  all  to  the  delivery  of  personal  chattels  in  other  cases 
of  sale,  is,  to  hand  over  to  the  buyer  his  certificate,  with  a  suffi- 
cient assignment  by  deed  or  otherwise  to  entitle  him  to  a  trans- 
fer of  the  shares  on  the  books  of  the  company.  When  the  seller 
has  done  this,  his  power  and  duty  in  the  matter  are  ended,  and 
it  is  the  option  of  the  purchaser  whether  the  transfer  shall  be  re- 
corded or  not.  If  the  purchaser  omits  to  have  this  record  made, 
he  can  claim  no  rights  as  a  member  of  the  corporation ;  and  he 
also  incurs  the  further  risk  of  having  his  title  defeated  by  a  sub- 
sequent attachment  or  sale  to  a  bond  fide  purchaser." 

203.  Nevada.^  —  Whenever  the  capital  stock  of  any  corpora- 
tion is  divided  into  shares,  and  certificates  thereof  are  issued,  the 
stock  of  the  company  shall  be  deemed  personal  estate.  Such 
shares  maj^  be  transferred  by  indorsement  and  delivery  of  the 
certificate  thereof,  such  indorsement  being  by  the  signature  of 
the  proprietor,  or  his  or  her  attorney  or  legal  representative ; 
but  such  transfer  shall  not  be  valid  except  between  the  parties 
thereto,  until  the  same  shall  have  been  so  entered  upon  the  books 
of  the  corporation  as  to  show  the  names  of  the  parties  by  and  to 
whom  transferred,  the  number  or  designation  of  the  shares,  and 
the  date  of  the  transfer.  In  all  cases  in  which  shares  of  stock  in 
corporations  now  existing,  or  hereafter  incorporated  under  any 

1  Pinkerton  v.  Manchester  &  Law-  ^  Scripture  v.  Soapstone  Co.  50  N. 
rence  R.  R.  Co.  42  N.  H.  424.  H.  571. 

3  Comp.  Laws  1873,  vol.  2,  §§  3397, 
152  3400. 


AS   BETWEEN  THE   PARTIES   AND   THEIR   CREDITORS.         [§  204. 

law  of  this  state,  are  held  or  owned  by  a  married  woman,  such 
shares  may  be  transferred  by  her,  her  agent  or  attorney,  with- 
out the  signature  of  her  husband,  in  the  same  manner  as  if  such 
married  woman  were  a  feme  sole.  All  dividends  payable  upon 
any  shares  of  stock  of  a  corporation  held  by  a  married  woman, 
may  be  paid  to  such  married  woman,  her  agent  or  attorney,  in 
the  same  manner  as  if  she  were  unmarried.  And  it  shall  not  be 
necessary  for  her  husband  to  join  in  receipt  therefor  ;  and  any 
proxy  or  power  given  by  a  married  woman,  touching  any  share 
of  stock  of  any  corporation  owned  by  her  shall  be  valid  and  be 
binding,  without  the  signature  of  her  husband,  the  same  as  if  she 
were  vinmarried. 

Any  stockholder  may  pledge  his  stock,  by  a  delivery  of  the 
certificates,  or  other  evidence  of  his  interest,  but  may  neverthe- 
less represent  the  same  at  all  meetings  and  vote  as  a  stockholder. 

204.  New  Jersey. 1  —  The  shares  of  stock  in  every  corpora- 
tion of  this  state  shall  be  deemed  personal  property,  and  shall  be 
transferable  on  the  books  of  such  company  in  such  manner  as 
the  by-laws  may  provide  ;  and  whenever  any  transfer  of  shares 
shall  be  made  for  collateral  security,  and  not  absolutely,  the 
same  shall  be  so  expressed  in  the  entry  of  said  transfer. 

In  this  state  it  is  held  that  shares  in  a  corporation,  whose 
charter  provides  that  the  capital  stock  of  the  company  shall  be 
deemed  personal  estate,  and  "  be  transferable  upon  the  books  of 
the  corporation,"  can  be  effectually  transferred  as  collateral  secu- 
rity for  a  debt,  as  against  a  creditor  of  the  pledgor,  who  after- 
wards attaches  them  without  notice  of  any  transfer,  by  a  deliv- 
ery of  a  certificate  with  a  blank  power  of  attorney,  or  with  an 
assignment  in  blank.^  Upon  the  policy  of  so  constructing  this 
provision.  Chancellor  Green,  of  New  Jersey,  says :  ^  "  The 
pledge  of  stocks  as  collateral  security  has  become  a  prevalent, 
and,  to  the  borrower  especially,  an  advantageous  mode  of  effect- 
ing loans.  In  manufacturing  companies  especially,  where  the 
business  of  the  company  is  carried  on  by  the  stockholder,  and 
where  his  capital  is  mainly  or   exclusively  vested  in  the  stock, 

1  R.  S.  1877,  p.  181,  §  26.  Nassau  Bank,  17  N.  J.  Eq.  496;  Rog- 

2  Broadwaiy  Bank  v.  McEIrath,  13     ers  v.  N.  -T.  Ins.  Co.  8  lb.  16  7. 

N.  J.  Ya{.  24;   Hunterdon  Co.  Bank  v.         ^  Broadway  Bank  v.  IMcKlrath,   13 

N.  J.  Eq.  24. 

153 


§§  205,  206.]    PLEDGES  OF  CORPORATE  STOCKS. 

and  employed  in  the  active  operations  of  business,  the  pledge  of 
stocks  uffords  the  most  ready  and  advantageous  mode  of  effect- 
ing loans  for  the  demands  of  business.  To  require  a  transfer  of 
the  stock  to  the  lender  as  security  for  the  loan,  against  the  right 
of  attaching  or  execution  creditors,  will  at  once  destroy  the  value 
of  the  security,  or  compel  the  borrower  to  divest  himself  of  his 
character  as  corporator,  to  forfeit  his  conti'ol  of  the  business  of 
the  corporation,  of  his  right  to  dividends,  and  of  all  his  other 
rights  as  a  stockholder  in  the  corporation.  Why  should  the 
owner  of  stocks  be  deprived  of  the  privilege  of  mortgaging  or 
pledging  his  stock  for  the  security  of  a  loan,  without  stripping 
himself  of  all  his  rights  of  ownership,  more  than  the  owner  of 
any  other  property." 

205.  New  Mexico  Territory.^  —  No  transfer  of  stock  shall  be 
valid  for  any  purpose  whatever,  except  to  render  the  person  to 
whom  it  shall  be  transferred  liable  for  the  debts  of  the  company, 
unless  the  same  be  so  entered  on  the  books  of  the  company  as  to 
show  the  names  of  the  parties  by  and  to  whom  transferred,  the 
number  and  designation  of  the  shares,  and  the  date  of  the  trans- 
fer, within  sixty  days  from  the  date  of  the  transfer. 

Any  stockholder  may  pledge  his  stock  by  a  delivery  of  the 
certificates  or  other  evidence  of  his  interest,  but  may  nevertheless 
represent  the  same  at  all  meetings,  and  vote  accordingly  as  a 
stockholder. 

206.  In  New  York  it  is  held  that  a  proTision  in  a  certificate 
of  stock,  though  in  accordance  with  the  by-laws  of  the  corpora- 
tion, that  the  shares  are  transferable  only  upon  the  book  of  the 
company,  means  that  the  company  will  not  recognize  any  one  as 
owner  of  the  stock,  unless  it  be  so  transferred  ;  but  that  it  does 
not  affect  the  rights  which  another  person  may  acquire  as  against 
the  stockholder,  by  the  delivery  of  the  certificate  in  pledge.^     A 

1  G.  L.  1880,  pp.  205,  206,  §§  9,  12,  22  Wend.  348;  S.  C.  20  lb.  91  ;  Hol- 
p.  214,  §  7 ;  Act  of  1880,  c.  3.  brook  v.  N.  J.  Zinc  Co.  57  N.  Y.  516, 

2  McNeil  V.  Tenth  Nat.  Bank,  46  623;  Weaver  r.  Barden,  49  N.  Y.  286; 
N.  Y.  325  ;  Smith  v.  Am.  Coal  Co.  7  Leitch  v.  Wells,  48  N.  Y.  585,  587, 
Lans.  317;  N.  Y.  &  N.  H.  R.  R.  Co.  606;  Hill  v.  Newichawanick  Co.  48 
V.  Schuyler,  34  N.  Y.  30;  Bank  of  How.  Pr.  427;  DriscoU  v.  West,  &c. 
Utica  V.  Smalley,  2  Cow.  770  ;  Com-  Manufacturing  Co.  36  N.  Y.  Superior 
mercial  Bank  of  Buffalo  v.  Kortright,  Ct.  488 ;  Comeau  v.  Guild  Farm  Oil 

154  Co.  3  Daly,  218. 


AS  BETWEEN   THE   PARTIES   AND   THEIR   CREDITORS.  [§  207. 

transfer  by  delivery  of  the  certificate  is  nevertheless  valid  against 
an  attaching  creditor  of  the  pledgor,  when  the  attachment  is 
made  after  such  transfer,  but  before  there  has  been  any  transfer 
made  on  the  books  of  the  company .1 

"  It  has  also  been  settled,  by  repeated  adjudications,  that,  as 
between  the  parties,  the  delivery  of  the  certificate,  with  assign- 
ment and  power  indorsed,  passes  the  entire  title,  legal  and  equi- 
table, in  the  shares,  notwithstanding  that,  by  the  terms  of  the 
charter  or  by-laws  of  the  corporation,  the  stock  is  declared  to  be 
transferable  only  on  its  books  ;  that  such  provisions  are  intended 
solely  for  the  protection  of  the  corporation,  and  can  be  waived 
or  asserted  at  its  pleasure,  and  that  no  effect  is  given  to  them 
except  for  the  protection  of  the  corporation  ;  that  they  do  not  in- 
capacitate the  shareholder  from  parting  with  his  interest,  and 
that  his  assignment,  not  on  the  books,  passes  the  entire  legal 
title  of  the  stock,  subject  only  to  such  liens  or  claims  as  the  cor- 
poration may  have  upon  it,  and  excepting  the  right  of  voting  at 
elections."  ^ 

207.  North  Carolina. ^ —  Certificates  of  stock  shall  be  assign- 
able by  the  indorsement  of  the  owner,  or  by  some  writing  at- 
tached thereto;  but  no  assignment  of  the  stock  of  any  company 
by  the  registered  plan  of  incorporation,  of  which  the  individual 
stockholders  are  liable  for  the  contracts  of  the  company,  shall  be 

Under  a  contract  to  deliver  stock;  ment  and  execution.     "  But  this  pro- 

a  tender  of  a  certificate  with  a  blank  vision  of  law  cannot  aid  an  attach- 

power  to  transfer  is  sufficient  without  ment  against  a  defendant,  who  has  no 

an  actual  transfer  to  the  name  of  the  rights  or  shares  in  the  stock  of  a  cor- 

purcliaser.     Orr  v.  Bigelow,  20  Barb,  poration.     If,  previous  to  the  issuing 

(N.   Y.)    21 ;    Munn    v.    Barnum,    24  of  the  attachment,  the  defendant  has 

Barb.  (N.  Y.)  283  ;  Driscoll  v.  West,  assigned  all  his  interest  in  the  rights 

&c.  Manufacturing  Co.  36  N.  Y.  Su-  or  shares,  and  delivered  over  the  cer- 

perior  Ct.  488 ;  S.  C.  59  N.  Y.  96.  tificate  with  transfer  and  power,  it  is 

^  Smith  V.  Am.  Coal  Co.  7   Lans.  thenceforth  the  holder  of  these  indicia 

317;  Comeau  v.  Guild  Farm  Oil  Co.  of  title  who  is  possessed  of  the  prop- 

3  Daly,  218.  erty  in  the  shares,  and  not  the  origi- 

By  §  647   of  Code  of   Civil  Proce-  nal  stockholder."     Smith  v.  American 

dure   1880,  and  §  234  of  the  previous  Coal  Co.  7  Lans.  317. 
Code,  it  is  provided  that  the  rights  or         2  isIfNeil   v.  Tenth  Nat.  Bank,  46 

shares   which   a  defendant  may  have  N.  Y.  325,  331,  per  Rapallo,  J. 
in  the  stock  of  any  corporation  shall         «  Battle's    Revisal    1873,    c.    26,    § 

be  liable   to  be   attached   and   levied  16. 
upon,   and    sold    to  satisfy   the  judg- 

155 


§§  208,  209.]  PLEDGES   OF   CORPORATE   STOCKS. 

valid  to  exonerate  the  assignor  from  sucli  liability  upon  contracts 
made  after  such  assignment,  until  such  assignment  shall  have 
been  entered  on  the  stock  book  of  the  company ;  nor  shall  any 
company  be  bound  to  notice  of  such  assignment  until  the  same, 
authenticated  as  may  be  required  by  the  by-laws,  shall  be  pre- 
sented to  the  proper  officer  for  entry  on  such  book. 

208.  Ohio.^  —  It  is  provided  by  statute  that  shares  of  stock  in 
any  company  shall  be  personal  property,  and  when  fully  paid 
up  shall  be  subject  to  levy  and  sale  upon  execution  against  the 
owner. 

It  seems  that  a  pledge  by  delivery  of  the  certificate  is  effectual, 
though  the  certificate,  in  accordance  with  a  by-law  and  with  the 
articles  of  association  of  the  corporation,  is  expressly  made  "  trans- 
ferable only  on  the  books  of  the  bank,  in  person  or  by  attorney."  ^ 

209.  Pennsylvania.^  —  Certificates  or  evidences  of  stock  of  a 
corporation  shall  be  transferable  at  the  pleasure  of  the  holder  in 
person,  or  by  attorney  duly  authorized,  as  the  by-laws  may  pre- 
scribe, subject,  however,  to  all  payments  due,  or  to  become  due 
thereon  ;  and  the  assignee  or  party  to  whom  the  same  shall  have 
been  so  transferred,  shall  be  a  member  of  said  corporation,  and 
have  and  enjoy  all  the  immunities,  privileges  and  franchises,  and 
be  subject  to  all  the  liabilities,  conditions  and  penalties  incident 
thereto,  in  the  same  manner  as  the  original  subscriber  or  holder 
would  have  been  ;  but  no  certificate  shall  be  transferred  so  long 
as  the  holder  thereof  is  indebted  to  said  company,  unless  the 
board  of  directors  shall  consent  thereto. 

A  substantial  compliance  with  a  by-law  requiring  a  transfer  of 
stock  to  be  made  on  the  books  of  the  company,  and  attested  by 
the  secretary,  is  all  that  is  necessary.  Thus,  when  a  stockholder 
empowered  the  secretary  of  the  company  to  transfer  certain 
shares,  and  the  secretary  in  pursuance  of  such  power  entered  on 
the  books   that  the  stock  was    transferred,  adding  "  see   paper 

1  R.  S.  1880,  §3255.  bank  assignable  only  on  the  books  of 

2  Lee  V.  Citizens'  Nat.  Bank,  2  Su-  the  corporation,  in  such  manner  as  its 
perior  Ct.  298.  by-laws   shall   ordain,   and  providing 

3  Brightly's  Pardon's  Ann.  Dig.  p.  that  no  transfer  shall  be  made  by  a 
1844,  §  19.  stockholder   indebted    to    the    bank, 

For  a   statute    making    stock   of  a     see  Act  April  10,  1850,  §  10,  art.  10. 

156 


AS  BETWEEN  THE  PARTIES  AND  THEIR  CREDITORS.   [§  209. 

filed,"  and  wafered  the  power  of  attorney  to  the  book  and  at- 
tested the  entry  of  transfer  as  secretary,  the  transfer  was  held  to 
be  good,  although  the  secretary  signed  no  transfer  as  attorney 
under  the  power.^  "  The  practice  was  to  permit  the  transfers  in 
the  presence  of  the  secretary,  who  attested  them.  Everything 
was  done  which  the  by-laws  and  usage  of  the  company  required, 
except  that  he  did  not  sign  the  transfer  twice  over,  as  attorney, 
and  then  attest  his  own  signature  as  secretary.  But  he  no  doubt 
thought  that  attaching  the  sign  manual  of  the  holder,  appended 
to  the  authority  or  power,  to  the  books  and  entry,  was  higher 
evidence  of  the  transfer  than  his  own  signature  would  be.  The 
law  looks  more  to  the  substance  of  things  than  to  the  mere  form." 

In  this  state  an  attachment  of  stock  is  made  in  the  manner  of 
a  proceeding  against  a  trustee  or  garnishee  in  a  foreign  attach- 
ment, and  it  is  held  that  assignment  of  stock  by  delivery  of  the 
certificate  with  a  power  to  transfer,  conveys  the  real  ownership 
of  the  stock  so  that  an  attachment  afterwards  made  of  the  stock, 
as  the  property  of  the  assignor,  before  a  transfer  is  made  upon 
the  books  of  the  corpoi-ation,  is  ineffectual.^  The  assignee  in  such 
case  is  the  equitable  owner,  or  the  real  owner,  and  must  be 
treated  as  such  when  known,  by  all  the  world,  excepting  the  cor- 
poration itself,  which  for  certain  purposes,  may  refuse  to  do  so. 
The  effect  of  such  an  assignment  of  stock  is  the  same  as  that  of 
an  assignment  of  a  chose  in  action  prior  to  the  service  of  a  trus- 
tee or  garnishee  process  upon  the  supposed  trustee ;  although  the 
trustee  may  then  have  had  no  notice  of  the  assignment,  this  will 
prevail  against  the  subsequent  attachment. 

In  one  case  it  appeared  that  the  Duchess  of  Cumberland 
bought  at  London  in  1794  ten  shares  of  the  Bank  of  the  United 
States,  and  received  therefor  a  certificate  with  a  blank  power  to 
transfer.3     She  held   this  certificate  and  power  until  1804.    In 

^  Chambersburg  Ins.  Co.  v.  Smith,  instituted    against   the   party,    whose 

11  Pa.  St.  120,  125.  name  must  necessarily  be  used  at  law 

2  Finney's  Appeal,  59  Pa.  St.  398  ;  for  the  recovery  of  the  demand  ;  and 

Commonwealth  y.Watmough,  6  VVhart.  that  an   attaching  creditor  can  stand 

(Pa.)  117;   United  States  v.  Vaughan,  on  no  better  footing  than  his  debtor." 

3  Binn.  (Pa.)  394.     In  the  latter  case  And  see  Early  &  Lane's  App.  «9  Pa. 

Yeates,  J.,   said:  "It   cannot  be  de-  St.   411;   Bank    of    Commerce's  App. 

nied,    that    a   mere   chose   in    action  73  Pa.  St.  59. 

equitaljly  assigned,  is    not  subject  to  «  An  assignment  of  the  stock  of  a 

the  operation  of  a  foreign  attachment  corporation  to  itself,  as  collateral  se- 

lo7 


§  210.]  PLEDGES   OF   CORPORATE   STOCKS. 

1803  the  United  States  attached  the  stock,  which  still  stood  in 
the  seller's  name,  for  a  debt  due  from  him.  It  was  proved,  under 
objection,  that  it  had  been  the  course  of  business  in  relation  to  the 
sale  of  this  stock  in  England,  for  the  vendor  to  deliver  the  certifi- 
cates to  the  vendee,  together  with  a  power  of  attorney  from  him 
in  whose  name  the  stock  stood,  to  a  third  person,  usually  an  assist- 
ant cashier  of  the  bank,  authorizing  him  to  transfer  the  same  to 
some  person  not  named,  and  that  by  the  delivery  of  the  certifi- 
cate and  the  blank  power  of  attorney,  the  shares  passed 'from 
hand  to  hand,  the  blank  never  being  filled  up  until  it  was  for- 
warded to  the  United  States  for  transfer.  It  was  held  that  the 
purchaser's  title  was  superior  to  that  of  the  attaching  creditor.^ 

210.  Rhode  Island.  —  The  shares  into  which  the  capital  stock 
of  any  corporation  shall  be  divided  shall  be  deemed  to  be  per- 
sonal estate,  unless  otherwise  provided  in  the  act  creating  the 
corporation,  and  shall  be  transferable  in  such  manner  as  shall  be 
prescribed  by  the  by-laws  of  the  corporation. 

In  a  recent  case  in  this  state  ^  it  apjoeared  that  a  person  own- 
ing certain  corporate  shares,  transferred  them  on  the  books  of 
the  corporation  as  collateral  for  a  loan  which  he  had  negotiated 
for.  The  arrangements  for  the  loan  having  fallen  through,  the 
person  in  whose  name  the  certificate  had  been  taken  out,  at  the 
request  of  the  owner  of  the  shares,  indorsed  and  transferred  the 
certificate  of  stock  to  a  creditor  of  the  owner.  Before  a  transfer 
was  made  on  the  books  of  the  corporation  to  this  creditor,  the 
shares  were  attached  by  another  creditor.  The  charter  of  the 
corporation  contained  no  provision  as  to  the  transfer  of  stock, 
but  the  by-laws  provided  that  "  all  transfers  of  stock  shall  be 
made  in  the  books  of  the  company."  On  a  bill  in  equity  brought 
to  establish  the  lien  of  the  attachment,  it  was  held  that  in  the 
absence  of  any  fraudulent  intent  on  the  part  of  the  debtor  in  the 
transfer  of  the  stock,  the  attachment  could  not  be  sustained. 
Chief  Justice  Durfee,  delivering  the  opinion  of  the  court,  said  : 
"  Where  the  legal  and  the  equitable  titles  unite  in  the  same  per- 
son, it  is  well  settled  that  such  a  transfer  carries   at  least  the 

curity  for  a  loan,  divests  the  title  of        ^  United  States  v.  Vaughan,  3  Binn. 
the  assignor  so  far  as  to  prevent  a  sale     394. 

of  it  under  a /en /acias  against  him.         ^  q.^   §_   i872,   c.  '  139,   §   2;   P.  S. 
Eby  V.  Guest,  94  Pa.  St.  160.  1882,  c.  152,  §  2;  Beckwith  v.  Bur- 

rough,  13  R.  1.  294. 
158 


AS   BETWEEN  THE   PARTIES   AND   THEIR   CREDITORS.    [§§  211,  212. 

equitable  title,  even  when,  by  statute,  charter,  or  by-law,  the 
stock  is  declared  to  be  transferable  only  on  the  corporation 
books. ^  In  the  case  at  bar,  however,  the  legal  title  was  in  one 
person  and  the  equitable  in  another,  and  the  question  is  what,  in 
such  a  case,  is  the  effect  of  such  a  transfer.  It  may  be  that  in  such 
a  case  the  equitable  title  would  not  always  pass  ;  as  for  instance, 
if  the  transfer  were  made  by  the  legal  owner  to  pay  a  debt  of 
his  without  the  consent  of  the  equitable  owner.  But  we  have  no 
case  like  that  here.  Here  the  transfer  was  made  not  in  violation 
of  the  trust,  but  in  fulfilment  of  it.  It  was  made  under  the  di- 
rection of  the  equitable  owner  to  secure  or  pay  pro  tanto  his 
debt,  and  when  made  was  delivered  by  him  personally  to  the 
transferee.  We  think  the  equitable  title  must  be  held  to  have 
passed.  An  equitable  assignment  may  be  made  without  deed  or 
writing,  by  any  act  intended  to  operate  as  such,  a  delivery  of 
the  evidences  of  title  being  particularly  significant  of  such  an 
intent  ....  Without  deciding,  therefore,  whether  an  unre- 
corded transfer  would  avail  against  an  attaching  creditor  where 
the  stock  stood  in  the  name  of  the  debtor,  we  decide,  for  the 
reasons  above  given,  that  the  complainant  has  not,  independently 
of  his  charges  of  fraud,  made  out  a  case  which  entitles  him  to 
relief." 

211.  South  Carolina.^  —  The  shares  in  the  capital  stock  of 
such  corporations  shall  be  deemed  personal  estate ;  and  the  mode 
of  issuing  the  evidence  of  stock,  and  the  manner,  terms,  and  con- 
ditions of  assigning  and  transferring  shares,  shall  be  prescribed 
by  the  by-laws  of  each  corporation. 

212.  Tennessee.  —  According  to  the  earlier  decisions  in  this 
state,  the  title  of  one  taking  certificates  of  stock  as  collateral 
security  was  not  regarded  as  complete  against  the  debtor's 
creditors  until  notice  of  the  transfer  had  been  given  the  corpora- 
tion. If,  before  such  notice  was  given,  such  creditor  attached  the 
stock,  or  levied  execution  upon  it,  he  had  the  better  right  to  it.^ 

^  Lockwood  v.  Mechanics' National  483;    Parrott  v.  Byers,  40   Cal.  C14; 

Bank,   9   R.  I.    308,   331;  Broadway  Blouin    v.   Hart,    30    La.    Ann.    714; 

Bank  v.  Mclillrath,  13  N.  J.  Eq.  24;  Bank  of  America  v.  McNiel,  10  Bush, 

United   States    v.    Vaughan,   3  Binn.  54. 

394  ;    Grymes    v.    Hone,   49    N.    Y.  «  g,  S.  1882,  §  1365. 

17;  Black  v.  Zacharie,  3  How.  U.  S.  ®  State  Ins.  Co.  v.  Sax,  2  Tenn.  Ch. 

159 


§§  213,  214.]  PLEDGES   OF   CORPORATE  STOCKS. 

This  rule  was  based  upon  the  English  doctrine,  that  notice  is 
necessary  to  perfect  an  assignment  of  any  chose  in  action ;  ^  and 
the  policy  of  the  rule,  as  applied  to  transfers  of  stock,  was  re- 
garded as  obvious,  because  it  afforded  a  I'eady  means  of  ascer- 
taining the  title  to  stock,  and  of  preventing  the  setting  up  of 
fraudulent  claims  under  secret  transfers  of  certificates.  By 
giving  such  notice  to  the  company,  the  assignee  acquired  an 
equity  superior  to  the  right  of  a  subsequently  attaching  creditor, 
although  there  be  a  valid  by-law  that  stock  is  transferable  only 
on  the  books  of  the  company .^ 

But  it  is  now  held  that  an  assignment  of  a  certificate  of  stock 
with  a  blank  power  of  attorney  to  make  the  transfer  upon  the 
books  of  the  corporation  passes  a  complete  legal  title,  and  is 
effectual  against  the  assignor's  creditors  without  any  registry 
upon  the  books  of  the  corporation,  and  without  notice  to  it  of 
the  assignment.^ 

213.  Texas.*  —  The  stock  of  any  corporation  created  in  this 
state  shall  be  deemed  personal  estate,  and  shall  be  transferable 
only  on  the  books  of  the  corporation  in  such  manner  as  the  by- 
laws may  prescribe. 

In  the  absence  of  a  charter  or  statutory  provision  requiring  a 
transfer  of  stock  ^n  the  books  of  the  company,  as  between  the 
shareholder  and  his  assignee,  to  pass  title  as  against  a  creditor, 
the  interest  of  the  creditor  is  regarded  as  subordinate  to  that  of 
a  bond  fide  assignee.^  The  true  policy  of  the  law  is  to  favor 
unrestricted  transfers  of  stock.  An  assignee  or  purchaser  should 
not  be  bound  to  look  beyond  the  certificate,  or  to  examine  the 
books  of  the  corporation,  to  ascertain  the  validity  of  a  transfer, 
as  a  different  rule  would  impair  the  value  of  stock,  and  seriously 
disturb  the  usages  of  trade  and  the  established  order  of  business. 

214.  Utah  Territory.^  —  The  stock  shall  be  deemed  personal 

507  ;  Clodfelter  v.  Cox,  1  Sneed,  330;  Cherry  v.  Frost,  7  Lea,   1 ;  Cherry  v. 

and  see   dissenting  opinions   of  Mc-  Frost,    7  Lea,  1;    S.    C.    21   Am.  L. 

Farland  and  Cooper,  J  J.  in  Cornick  Reg.  (N.  S.)  57.    See  §  159. 

V.  Richards,  3  Lea,  1.  *  R.  S.  1879,  p,  99,  §  590. 

1  Judson  V.  Corcoran,  17  How.  612.  *•  Strange  v.  Houston  &  Tex.  Cent. 

2  State  Ins.  Co.  v.  Gennett,  2  Tenn.  R.  R.  Co.  53  Tex.  162. 

Ch.  100.  6  Compiled    Laws  1876,  p.  230,   § 

2  Cornick  v.  Richards,    3   Lea,   1;     542. 

160 


AS   BETWEEN    THE   PARTIES  AND    THEIR   CREDITORS.    [§§  215,  216. 

property,  and  may  be  transferred  in  such  manner  as  may  be  pro- 
vided in  the  agreement  or  by-laws. 

215.  Vermont. 1  —  The  capital  stock  of  all  private  corporations 
shall  be  deemed  personal  estate,  for  all  purposes,  and  the  stock  in 
any  such  corporation  may  be  transferred  in  the  manner  provided 
by  its  by-laws. 

It  is  held  in  this  state  that  a  delivery  of  a  certificate,  with  a 
power  of  transfer,  vests  the  title  in  the  transferee  ;  that  the 
object  of  having  the  transfer  recorded  on  the  books  of  the  cor- 
poration is  notice,  and  only  that ;  and  consequently  that  such  a 
transfer,  though  unrecorded,  is  good  against  the  party  himself, 
and  all  those  who  have  notice  of  the  fact  of  the  transfer.  Bub 
such  a  transfer  seems  to  be  regarded  as  ineffectual  as  against 
creditors  of  the  assignor.  The  stock,  while  standing  in  the 
assignor's  name,  after  his  transfer  by  delivery  of  the  certificate, 
with  a  power  of  transfer  upon  the  books  of  the  company,  is 
probably  subject  to  any  attachment  at  the  suit  of  his  creditors, 
if  they  have  no  notice  in  fact  of  the  transfer.^  "  We  entertain 
no  reasonable  doubt,"  says  Redfield,^  "  that  the  mode  of  transfer 
of  stock  pointed  out  in  the  charter  is  the  only  mode  which  the 
public  are  bound  to  regard  as  conveying  the  title.  All  persons 
unaffected  with  notice  to  the  contrary  are  at  liberty  to  act  upon 
the  faith  of  the  title  being  where  it  appears  upon  the  books  of 
the  corporation  to  be.  This  view  we  do  not  think  inconsistent 
with  the  notion  that  any  other  mode  of  conveyance  may  be  per- 
fectly good,  between  the  parties  to  it,  and  to  all,  others  having 
notice  of  it,  the  same  as  an  unrecorded  deed,  or  notice  of  a  mere 
equity." 

216.  Virginia  4  and  West  Virginia.^  —  Jf  any  person,  for 
valuable  consideration,  sell,  pledge,  or  otherwise  dispose  of  any 
shares  belonging  to  him  to  another,  and  deliver  to  him  the  cer- 
tificate for  such  shares,  with  a  power  of  attorney  authorizing  the 
transfer  of  the  same  on  the  books  of  the  corporation,  the  title  of 
the  former  shall  vest  in  the  latter,  so  far  as  may  be  necessary  to 

1  G.  S.  1862,  C.8G,  §  4;  R.  S.  1880,  3  Sabin  v.  Bank  of  Woodstock,  21 
c.  152,  §  32.^8.  Vt.  353,  362. 

2  Noyes  V.  Spaulding,   27  Vt.  420,  *  Code  1873,  c.  57,  §  29. 
426,  per  I.sham  J.  6  n^  s.  1879,  c.  25,  §  37. 

11  161 


§§  217-219.]         PLEDGES   OF   CORPORATE   STOCKS. 

effect  the  sale,  pledge,  or  other  disposal  of  the  said  shares,  not 
only  as  between  the  parties  themselves,  but  also  as  against  the 
creditors  of  and  subsequent  purchasers  from  the  former. 

217.  "Washington  Territory.^  —  The  stock  of  the  company 
shall  be  deemed  personal  estate,  and  shall  be  transferable  in  such 
manner  as  shall  be  prescribed  by  the  by-laws  of  the  company  ; 
but  no  transfer  shall  be  valid  except  between  the  parties  thereto, 
until  the  same  shall  have  been  entered  upon  the  books  of  the 
company,  so  as  to  show  the  names  of  the  parties,  by  and  to 
whom  transferred,  the  numbers  and  designation  of  the  shares, 
and  the  date  of  the  transfer. 

Any  stockholder  may  pledge  his  stock  by  a  delivery  of  the 
certificate  or  other  evidence  of  his  interest,  but  may,  never- 
theless, represent  the  same  at  all  meetings,  and  vote  as  a  stock- 
holder. 

218.  Wisconsin.!  —  The  capital  stock  of  every  corporation 
divided  into  shares  shall  be  deemed  personal  property,  and  when 
certificates  thereof  are  issued,  such  shares  may  be  transferred  by 
indorsement  of  the  owner,  his  attorney,  or  legal  representatives, 
and  delivery  of  the  certificates  ;  but  such  transfer  shall  not  be 
valid,  except  between  the  parties  thereto,  until  the  same  shall 
have  been  so  entered  on  the  books  of  the  corporation  as  to  show 
the  names  of  the  j)arties  by  and  to  whom  transferred,  the  number 
and  designation  of  the  shares,  and  the  date  of  the  transfer,  and 
every  person  transferring  any  such  certificates  or  shares  of  stock 
shall  remain  liable  to  the  creditors  of  the  coi'poration  to  the 
extent  and  in  the  manner  prescribed  in  section  seventeen  hundred 
and  fifty-six ;  and  every  such  corporation  shall  at  all  times  have 
a  lien  upon  all  shares  of  stock  for  all  debts  due  from  the  owner 
thereof  to  such  corporation. 

The  stock  of  every  such  corporation  shall  be  deemed  personal 
estate,  and  shall  be  transferable  in  the  manner  prescribed  in  its 
by-laws,  but  no  shares  shall  be  transferable  until  all  previous 
calls  thereon  shall  have  been  fully  paid  in. 

219.  Wyoming  Territory .^  —  The  stock  of  corporations  shall 

1  R.  S.  1878,  p.  510,  §  1751;  p.  532,  ^  Compiled  Laws  1876,  c.  34,  §  10. 
§  1825.  3  Code  1881,  §§  2429,  2432. 

162 


AS   BETWEEN   THE  PARTIES   AND   THEIR   CREDITORS.  [§  220. 

be  deemed    personal  estate,  and  shall  be  transferable  in  such 
manner  as  shall  be  prescribed  by  the  by-laws  of  the  company. 

220.  Upon  a  review  of  the  statutes  and  decisions  upon 
this  subject  it  appears  that  the  courts  have  taken  a  much  more 
liberal  view  of  the  policy  that  should  govern  in  the  matter  of 
transfers  of  shares  of  stock  than  have  the  legislatures  of  the 
different  states ;  for  it  appears  that  where  there  has  been  legisla- 
tion upon  this  subject  the  legislation  has  generally  been  for  the 
purpose  of  restricting  transfers  of  stock  by  making  a  registry 
upon  the  books  of  the  corporation  requisite  to  the  validity  of 
such  transfers  for  any  purpose.  The  courts,  on  the  other  hand, 
have  been  disposed  to  allow  the  utmost  freedom  in  such  transfers, 
when  they  have  not  been  restricted  by  public  statutes,  or  by 
charters  having  the  force  of  such  statutes.  The  judicial  inter- 
pretation  of  the  common  law  rights  of  the  parties  respecting 
such  transfers  seems  to  have  had  in  view  the  convenience  of 
owners  of  corporate  stocks,  and  that  of  those  who  purchase 
them,  or  take  them  as  security;  while  legislation  upon  this 
subject  has  served  rather  for  the  protection  of  the  creditors  of 
stockholders.  The  judicial  view  of  this  matter  is  well  stated 
by  the  Supreme  Court  of  Tennessee,  in  a  recent  case.^  "  We 
know,  as  a  matter  of  well  accredited  current  history,  that  stocks 
are  used  every  day  in  the  transactions  of  our  business  men,  as 
collaterals,  as  well  as  sold,  and  that  the  universal  practice  is  to 
transfer  or  assign  the  certificate  of  the  stock,  with  a  power  of 
attorney  in  blank,  to  be  filled  up,  authorizing  a  transfer  by  the 
corporation  on  its  books  to  the  purchaser,  on  the  presentation  of 
which  power,  properly  authenticated,  the  corporation  transfers 
the  stock  to  the  purchaser  or  holder,  and  when  the  sale  is  abso- 
lute, it  is  usual  to  issue  new  certificates  to  the  party  taking  up 
the  old.  Such  a  practice  facilitates  the  easy  use  of  this  property 
in  commercial  transactions.  The  requirement  that  the  title 
could  alone  be  transferred  on  the  books  of  the  corporation,  or  by 
notice  to  the  corporation,  would  greatly  tend  to  trammel  this 
use,  and,  as  far  as  we  can  see,  notice  to  the  corporation  can  serve 
no  practical  end,  and  has  no  appropriate  place  in  the  transaction, 
so  far  as  passing  the  title  from  a  holder  to  a  purchaser,  or  the 
right  of  a  creditor  as  to  a  purchaser,  for  he  can,  as  he  will  always 

1  Cornick  v.  Richards,  3  Lea  (Tcnn.),  1,  23. 

163 


§  221.]  PLEDGES   OF   CORPORATE  STOCKS. 

do,  protect  himself  by  requiring  an  assignment  of  the  certificate, 
and  then  a  transfer  on  the  books  of  the  corporation.  Tlie  rule 
requiring  a  transfer  on  the  books  of  the  corporation  can  only- 
serve  to  give  a  creditor  who  has  a  judgment  or  attachment  a 
legal  advantage,  who  has  never  given  credit  on  the  faith  of  the 
stocks  over  the  other  who  has  advanced  his  money  on  them,  and 
taken  the  evidence  of  his  security  by  a  transfer  of  the  certificate. 
In  such  cases  alone  will  the  contest  be  likely  to  arise,  as  the  party 
who  intends  to  trust  to  the  security  of  such  property  will  always 
take  the  assignment.  In  such  a  contest  the  equities  are  altogether 
in  favor  of  the  assignee  who  has  advanced  his  money  on  the  faith 
of  the  collaterals." 

VIII.  Liens  wpon  Stock  in  favor  of  the  Corporation. 

221.  That  a  corporation  may  itself  have  a  lien  upon  the 
shares  of  a  stockholder  is  everywhere  conceded  ;  and  for  this 
reason,  also,,  no  one  is  entitled  to  regard  his  security  upon  stock 
complete  until  it.has  actually  been  transferred  to  him  upon  the 
company's  books.  For  instance,  if  the  charter  or  by-laws  of  a 
corporation  not  only  provide  that  no  assignment  of  stock  shall  be» 
valid  unless  made  upon  the  books  of  the  company,  but  also  pro- 
vide that  the  corporation  shall  have  a  lien  upon  the  stock  of  any 
shareholder  indebted  to  the  company  for  the  payment  of  his  debt, 
any  one  taking  a  transfer  of  the  stock  by  delivery  of  the  certificate 
without  a  transfer  upon  the  company's  books  takes  it  subject  to 
all  the  equitable  rights  of  the  company  against  the  apparent  owner 
of  the  stock.i  But  the  corporation  has  no  lien  upon  the  stock  of 
a  shareholder  merely  by  virtue  of  a  provision  that  the  stock  shall 

1  Union  Bank  of  Georgetown  v.  Bank  f.  Merchants' Bank,  45  Mo.  513; 
Laird,  2  Wheat.  390 ;  Pendergast  v.  St.  Louis  Perpetual  Ins.  Co.  v.  Good- 
Bank  of  Stockton,  2  Sawyer,  108;  fellow,  9  Mo.  149;  Cunningham  v. 
Stehbins  v.  Phenix  Fire  Ins.  Co.  3  Ala.  Life.  Ins.  &  Trust.  Co.  4  Ala. 
Paige  (N.  Y.),    350;    National  Bank  652;  Farmers' Bank  of  Md.  v.    Igle- 


V.  Watsontown  Bank,  105  U.  S.  217 
In  re  Bigelow,  2  Ben.  469;  Grant  r< 
Mechanics'  Bank  of  Phila.  15  S.  &  R, 
(Pa.)  140;  Geyer  v.  Western  Ins 
Co.  3  Pitts.  (Pa.)  41;  Vansands  v. 
Middlesex  Co.  Bank,  26  Conn.  144 
Planters'  &  Merchants'  Mut.  Ins.  Co 


hart,  6  Gill  (Md.),  50 ;  Burford  v. 
Crandell,  2  Cranch  C.  C.  86;  Bank  of 
America  v.  McNeil,  10  Bush  (Ky.), 
54 ;  Peebles,  in  re,  2  Hughes,  394. 
As  to  marshalling  as  between  a  cor- 
poration having  a  lien  upon  stock  by 
charter,  and  the  general  creditors  of 


V.  Selma    Sav.    Bank,    63    Ala.    585;  an     insolvent     debtor,    see     German 

Newberry  v.  Detroit  &  Lake  Superior  Security  Bank   v.  Jefferson,  10  Bush 

Iron   Co.   17  Mich.    141;    Mechanics'  (Ky,),  326. 

164 


LIENS   IN   FAVOR   OF   THE   CORPORATION.  [§  221. 

be  transferable  on  the  books  of  the  company.  Such  alien  cannot 
be  implied^  it  must  be  expressly  created  ;  ^  and  there  is  authority 
for  holding  that,  under  a  by-law  providing  that  the  shares  of  a 
stockholder  indebted  to  the  corporation  shall  not  be  transferable, 
and  that  the  certificates  should  contain  notice  of  this  provision,  a 
pledge  of  certificates  containing  merely  a  notice  that  the  stock  is 
only  transferable  upon  the  books  of  the  corporation  gives  to  one 
taking  such  certificates,  without  notice  of  the  owner's  liability  to 
the  corporation  or  of  such  by-law,  a  title  paramount  to  the  equities 
of  the  corporation.^  It  may  well  be  questioned,  however,  whether 
any  notice  of  the  b^^-law  would  be  necessary,  unless  the  by-law 
itself  made  it  so.  No  lien  upon  stock  exists  at  common  law  :  it 
exists  only  b}--  statutory  authority,  either  expressed  by  general 
law,  or  by  the  act  of  incorporation,  or  by  by-laws  made  under 
such  authority.^ 

Of  course  a  corporation  cannot,  under  such  a  provision,  main- 
tain a  lien  for  a  liability  of  a  stockholder  accruing  after  the  ser- 
vice of  an  attachment  or  a  levy  of  an  execution  upon  the  stock  ;  * 
and  no  lien  can  be  created  by  force  of  a  by-law  adopted  sub- 
sequently to  the  issuing  of  the  stock. ^ 

The  taking  of  collateral  security  by  a  corporation  is  no  waiver 
of  a  lien  which  the  corporation  has  by  its  charter  or  by-laws  upon 
the  debtor's  shares  in  such  corporation.  Therefore,  the  lien  of 
the  corporation  upon  the  debtor's  shares  in  such  case  is  superior 
to  any  which  the  debtor  can  give  by  a  transfer  to  another.^  But 
where  a  by-law  required  the  consent  of  the  directors  to  a  transfer 
of  stock  by  one  indebted  to  the  company,  but  in  the  practice  of 
the  company  this  requirement  was  never  enforced,  a  transfer 
by  a  stockholder,  attested  in  the  usual  way  by  the  secretary  of 

1  Bank  v.  Lanier,  11  Wall.  369;  Bank  v.  Laird,  2  Wheat.  390 ;  New 
Sargent  v.  Franklin  Ins.  Co.  8  Pick.  Orleans  Nat.  Banking  Asso.  v.  Wiltz, 
(Mass.)  90;  Bryon  v.  Carter,  22  La.  10  Fed.  Kep.  330;  Bryon  v.  Carter, 
Ann.  98;  Case  v.  Bank,  100  U.  S.  supra;  McDowell  v.  Bank  of  Wil- 
446.  As  to  the  effect  of  a  known  mington,  2  Del.  1  ;  Cuniraings  o.  Web- 
usage,  see  Morgan  v.  Bank  of  N.  A.  ster,  43  Me.  192. 

8  S.  &  R.  (Pa.)  73.  4  Gcyer  v.  Western  Lis.  Co.  3  Pitts, 

2  Lee  V.    Citizens'   Nat.   Bank    of     (Pa.)  41. 

Piqua,  2  Cin.  (Ohio)  298.  6  Bryon  v.  Carter,  supra. 

3  Steamship  Dock  Co.  v.  Heron,  52  ^  Union  Bank  of  Georgetown  v. 
Pa.  St.  280;  Leggett  v.  Bank  of  Sing  Laird,  2  Wheat.  390  ;  Peebles,  in  re, 
Sing,  24  N.Y.  283;  DriscoU  v.  Brad-  2  Hughes,  394. 

ley  Mauuf'g  Co.  59  N.  Y.  96;  Union 

1G5 


§§  222,  223.]    PLEDGES  OF  CORPORATE  STOCKS. 

the  company,  was  held  good,  although  he  was  indebted  to  the 
company.^ 

A  by-law  which  is  not  expressly  authorized  by  general  law,  or 
by  the  act  of  incorporation,  is  not  notice  of  a  lien  thereby  de- 
clared upon  the  stock  of  any  stockholder  indebted  to  the  corpora- 
tion.2 

222.  In  Connecticut  it  is  provided  that  every  corporation 
shall  at  all  times  have  a  lien  upon  all  stock  owned  by  any  person 
therein,  for  all  debts  due  to  it  from  him.^  This  statute,  it  was 
held,  immediately  upon  going  into  effect,  created  a  lien  in  favor 
of  a  corporation  for  an  old  indebtedness,  upon  stock  which  had 
previously  been  pledged  to  a  third  person,  if  such  pledge  was 
made  merely  by  delivery  of  the  certificate  of  the  stock,  with  a 
power  of  attorney  for  its  transfer,  and  no  copy  of  the  power  of 
attorney  had  been  filed  with  the  corporation,  or  other  notice  given 
to  it. 

Since  the  passage  of  this  statute  it  is  not  necessary  that  the 
corporation,  in  order  to  be  able  to  claim  the  benefit  of  it,  should 
issue  certificates  containing  notice  of  any  right  of  lien  on  the 
part  of  the  corporation.* 

223.  But  a  corporation  having  notice  that  the  stockholder 
has  pledged  his  stock,  by  a  delivery  of  the  certificate  with  a 
power  to  transfer  the  stock  upon  the  books  of  the  corporation,  can- 
not have  a  lien  upon  the  stock  for  a  credit  afterwards  extended  to 
him  upon  the  faith  of  its  charter  right  to  a  lien  to  secure  a  stock- 
holder's indebtedness.  Such  an  equitable  assignment  of  the  stock 
affects  one  who  has  knowledge  of  it  equally  as  much  as  if  the 
transfer  had  been  made  upon  the  books.  Notice  to  the  executive 
officer  of  a  corporation,  such  as  the  cashier  of  a  bank,  engaged  in 
the  active  dischai-ge  of  his  duties,  is  notice  to  the  corporation  itself 

1  Chambersburg  Ins.  Co.  v.  Smith,  the  statute  placed  an  attachment  upon 
11  Pa.  St.  120.  And  see  Upton  v.  the  stock  in  behalf  of  the  corporation ; 
Burnham,  3  Biss.  431.  it  publicly  recorded  a  completed  lien 

2  See  59  N.  Y.  96.  for  its  security,  and  that  would  have 
8  Rev.   1875,   p.    279,  §   8.      This     been  the  precise  effect  of  an  attach- 

statute  went  into  operation  the   first  ment.     Per  Pardee,  J. 

day  of  January,   1875.      First    Nat.         *  First  Nat.  Bank  v.  Hartford  Life 

Bank   v.   Hartford    Life   &   Annuity  &  Annuity  Ins.  Co.  supra. 

Ins.    Co.   45    Conn.    22.     Practically, 

166 


LIENS  IN   FAVOR   OF   THE   CORPORATION.       [§§  224,  225. 

of  such  an  equitable  transfer;  and  such  ofiBcer  knowing  of  the 
pledge  of  the  stockholder's  certificate  to  secure  a  promissory- 
note,  is  presumed  to  know  that  it  remains  in  pledge  for  a  renewal 
of  the  original  note.  Knowledge  of  the  original  transaction  should 
put  the  officer  upon  inquiry  as  to  the  state  of  the  stockholder's 
shares  before  the  corporation  gave  him  credit  upon  the  faith  of 
his  having  stock  upon  which  a  lien  could  attach  in  favor  of  the 
corporation.^ 

224.  National  Banks  cannot  claim  such  a  lien.  Such 
banks  are  prohibited  from  loaning  upon  the  security  of  their  own 
stock,  and  from  holding  or  purchasing  their  own  stock,  except 
when  necessary  to  prevent  loss  on  a  debt  previously  contracted  in 
good  faith,^  It  is  inconsistent  with  the  policy  of  this  act  for  a 
bank,  by  virtue  of  its  articles  of  association  or  by-laws,  to  have  a 
lien  upon  the  shares  of  a  stockholder  for  his  indebtedness  to  the 
bank.3  But  such  a  bank  may  hold  a  cash  dividend  upon  shares 
of  its  stock,  as  a  pledge  for  the  indebtedness  of  a  stockholder  to 
'the  bank  ;  and  a  bank  may  attach  the  shares  of  a  stockholder  for 
his  debt  to  the  bank.* 

225.  A  corporation  may  waive  its  lien  upon  a  member's 
stock.     A  statute  of  the  state  of  Pennsylvania  provides  that 

1  Bank  of  America  v.  McNeil,  10  security  for  the  payment  of  any  in- 

Busli  (Ky.),  54.     "  The  indebtedness  debtedness  it  may  innocently  permit 

this  lien  is  intended  to  secure,"  said  him  to  incur;  but  he  may,  by  bargain 

Lindsay,  J.,  delivering  the  opinion  of  and  sale,   by  gift,  devise,  or  pledge, 

the  court,  "  is  such   as    may  exist  at  divest  himself  of  title;  and  when  he 

the  time  the  stockholder  attempts  to  has  done  so,  and  notice  has  been  given 

dispose  of  his  stock.     It  is  manifest  to  the  bank,  it  has  no  right  to  extend 

that  the  lien  cannot  become  effectual  credit   to  him  upon  the  faith  of   his 

for  any  purpose  until  the  stockholder  charter  lien  upon  his  stock." 

contracts  a  debt  to  the  bank.     Until  ^  12   Stat,    at   Large,   675,  Act   of 

this  is  done,  his  power  to  sell,  give,  June  3,  1864. 

devise,  or  incumber  his  stock  is  as  ^  Bank  v.  Lanier,  11  Wall.  369  ; 
perfect  and  complete  as  is  his  right  so  Bullard  v.  Bank,  18  Wall.  589;  and 
to  dispose  of  or  incumber  any  other  see  Evansville  Nat.  Bank  v.  Metro- 
personal  property  he  may  own.  He  politan  Nat.  Bank,  2  Biss.  527;  Second 
cannot  pass  the  complete  legal  title  to  National  Bank  v.  National  State  Bank, 
his  stock  except  by  a  transfer  entered  10  Bush  (Ky.),  367. 
upon  the  books  of  the  bank,  nor  can  ^  Hagar  v.  Union  Nat.  Bank,  63 
he  by  any  arrangement  not  made  Me.  509  ;  S.  C.  Thompson's  Nat.  Bank 
known  to  the  bank  deprive  it  of  the  Cases,  523. 
right  to  look  to  his  stock  as  an  ultimate 

167 


§  225.]  PLEDGES   OF   CORPORATE   STOCKS. 

the  stock  of  a  bank  shall  be  transferable  on  the  books  of  the 
corporation  only  in  such  manner  as  the  by-laws  shall  ordain  ; 
but  that  stockholders  indebted  to  the  bank  shall  not  transfer 
their  stock  without  paying  or  securing  the  debt.^  Certain  shares 
of  the  stock  of  a  state  bank  were  transferred  by  a  banking  firm 
as  collateral  security,  and  the  pledgee  sent  the  certificate  to  the 
cashier,  and  requested  a  new  certificate.  The  cashier  of  the 
bank,  who  was  also  a  member  of  the  banking  firm,  replied  by 
letter,  agreeing  to  transfer  the  stock  in  a  short  time,  and  credited 
the  pledgee  with  the  stock  an  the  books  of  the  bank.  The  firm 
shortly  afterwards  failed,  with  a  large  indebtedness  to  the  bank, 
which  thereupon  refused  to  transfer  the  stock.  On  a  bill  in 
equity  to  compel  such  transfer,  it  was  held  that  the  act  of  the 
cashier,  which  was  within  his  customary  duties,  was  binding  upon 
the  bank,  and  effected  a  waiver  of  its  lien  upon  the  stock.^  Mr. 
Justice  Matthews,  delivering  the  opinion  of  the  court,  said: 
"  A  complete  transfer  of  the  title  to  the  stock  upon  the  books  of 
the  bank,  it  is  not  doubted,  would  have  the  effect  to  vest  it  in  the 
transferee,  free  from  any  claim  or  lien  of  the  bank.  The  con- 
sent of  the  bank,  made  necessary  to  such  transfer,  is  the  waiver 
of  its  right,  as  its  refusal  would  be  the  assertion  of  it.  The 
transfer,  when  thus  consummated,  destroys  the  relation  of  mem- 
bership between  the  corporation  and  the  old  stockholder,  with 
all  its  incidents,  and  creates  an  original  relation  with  the  new 
member,  free  from  all  antecedent  obligations.  This  legal  relation 
and  proprietary  interest,  on  which  it  is  based,  are  quite  inde- 
pendent of  the  certificate  of  ownership,  which  is  mere  evidence 
of  title.  The  complete  fact  of  title  may  very  well  exist  without 
it.  All  that  is  necessary,  when  the  transfer  is  required  by  law 
to  be  made  upon  the  books  of  the  corporation,  is,  that  the  fact 
should  be  appropriately  recorded  in  some  suitable  register  or 
stock  list,  or  otherwise  -formally  entered  upon  its  books.  For 
this  purpose  the  account  in  a  stock  ledger  showing  the  names  of 
the  stockholders,  the  number  and  amount  of  the  shares  belonging 
to  each,  and  the  sources  of  their  title,  whether  by  original  sub- 
scription and  payment,  or  by  derivation  from  others,  is  quite 
suitable,  and  fully  meets  the  requirements  of  the  law."  Even 
on  the  supposition   that  not   the  legal  title,  but  only  an  equity, 

1  Act  of  April  10,  1850,  Bank  Act,         2  National    Bank    v.    Watsontown 
art.  10,  §  10.  Bank,   105  U.  S.  217,   222;    S.    C.  4 

Morrison's  Trans.  400;  14  Rep.  230. 

168 


LIENS   IN    FAVOR   OF   THE   CORPORATION.  [§  226. 

based  on  an  executory  contract  for  a  transfer,  passed  to  the 
pledgee,  it  was  further  held,  in  the  case  last  referred  to,  that  the 
bank  had,  by  its  own  laches,  lost  the  legal  right  to  assert  its  lien  ; 
for  if  the  bank  had  intended  to  insist  on  its  legal  rights,  and 
assert  its  lien,  the  time  to  do  this  was  when  the  pledgee  made 
his  claim  for  a  transfer  of  the  stock  ;  but,  so  far  from  doing  this, 
it  permitted  the  pledgee  to  rest  in  the  belief  that  the  right  to 
transfer  the  stock  would  not  be  questioned,  its  action  being 
equivalent  to  a  declaration  that  it  had  no  adverse  claim.  There- 
fore, upon  the  failure  of  the  stockholder,  the  bank  cannot  be 
permitted  to  assert  a  lien,  the  enforcement  of  which  would  oper- 
ate as  a  fraud  upon  the  pledgee. 

226.  Damages  for  refusing  to  make  transfer.  —  If  a 
pledgee  of  the  stock  of  a  bank  applies  to  the  cashier  to  have 
a  transfer  made  to  himself  upon  the  books,  and  this  officer 
refuses  to  allow  the  transfer,  on  the  ground  that  the  pledgor  is 
indebted  to  the  bank,  and  it  appears  that  the  bank  is  not  en- 
titled to  such  a  lien,  upon  its  failure,  and  the  appointment  of  a 
receiver,  the  pledgee  may  recover  damages  for  the  loss  sustained 
by  him.i 

1  Case  V.  Bank,  100  U.  S.  446. 

169 


CHAPTER  VI. 


PLEDGES   OF   BILLS   OF  LADING. 


I.  Bills  of  lading  are  symbols  of  property, 

227-232. 
n.  How  far  negotiable  instruments,  233- 

244. 
lU.  How  far  binding  upon  the  carrier,  245- 

254. 
IV.  Whether  security  for  acceptance  or  pay- 
ment, 255-260. 
V.  How  bills  of  lading  may  be  pledged, 
261-265. 


VI.  A  pledgee's  rights  as  against  the  con- 
signor, 266,  267. 
VII.  A  pledgee's  rights  as  against  the  con- 
signee, 268-272. 
Vin.  A  pledgee's  rights  as  against  the  car- 
rier, 273-277. 
IX.  Rights  of  pledgees  of  different  parts  of 
the  same  bill  of  lading,  278,  279. 


I.  Bills  of  Lading  are  Symbols  of  Property. 

227.  In  general.  —  Bills  of  lading  or  receipts  for  goods  by 
common  carriers  have  become  a  very  important,  as  well  as  a  very 
common,  form  of  collateral  security.  Such  bills  or  receipts  repre- 
sent the  goods  themselves,  and  the  delivery  of  such  bills  or  re- 
ceipts as  collateral  securit}-^  generally  amounts  to  a  symbolical 
delivery  in  pledge  of  the  goods  themselves ;  yet  the  use  of  bills 
of  lading  and  shippers'  receipts  as  security  gives  rise  to  many 
questions  and  considerations  wholly  different  from  those  that 
arise  under  pledges  of  goods  in  the  ordinary  mode  of  an  actual 
delivery  of  the  goods  to  the  pledgee ;  and  therefore  this  use  of 
the  documentary  evidence  of  property  in  the  possession  of  the 
carrier  is  entitled  to  treatment  as  a  separate  branch  of  the  sub- 
ject of  collateral  securities. 

228.  An  eflfectual  delivery  of  goods  may  be  made  in  pledge, 
by  transfer  of  a  bill  of  lading,  or  shipping  receipt. ^  The  trans- 
fer of  a  bill  of  lading  as  collateral  security  is  regarded  not  only 
as  passing  the  legal  title  to  the  property,  but  as  constituting  an 


*  Lickbarrow  v.  Mason,  1  H.  Bl.  35, 
360;  1  Smith's  Lead.  Cas.  8th  Eng. 
ed.  753  ;  Barber  r.  Meyerstein,  L.  R. 

170 


4  H.  L.  317;  Petitt  j;.  First  Nat.  Bank, 
4  Bush  (Ky.),  334. 


BILLS  OF   LADING   ARE   SYMBOLS   OF   PROPERTY.        [§  229. 

actual  delivery  and  change  of  possession  of  the  property.^  Such 
bill  of  lading  or  receipt  may  be  made  out  directly  to  the  pledgee, 
or  may  be  indorsed  to  him.  If  not  made  out  directly  to  him, 
it  should  be  indorsed  to  him,  for  the  sending  it  unindorsed  by 
letter  containing  no  words  of  transfer,  might  give  the  person  re- 
ceiving it  no  claim  to  the  property .2  A  bill  of  lading  properly 
indorsed  to  the  consignee  who  has  made  advances,  is  evidence  of 
a  delivery  of  the  property,  although  it  be  signed  by  one  who  was 
not  in  fact  the  master  of  the  vessel,  and  had  no  authority  to  sign 
it,  but  was  supposed  by  the  consignor  to  be  the  master,  and  was 
personally  acting  as  such.^ 

229.  The  delivery  of  a  bill  of  lading  is  a  symbolical  de- 
livery of  the  property  represented  by  it.^  The  person  who 
takes  a  bill  of  lading  for  a  valuable  consideration,  whether  this 
arises  at  the  time,  or  rests  upon  a  previously  existing  debt,  has 
the  right  to  the  property  without  taking  actual  possession  of  it, 
or  doing  any  further  act  to  perfect  this  title.^  The  bill  of  lading 
stands  in  place  of  the  property  covered  by  it.  It  represents  the 
property.  "  When  the  right  of  possession  is  changed  by  a  sale  or 
pledge  of  the  property  itself,  the  transfer  of  the  bill  of  lading 
operates  as  a  change  of  possession  of  the  property,  the  carrier  in 
the  meantime  being  the  custodian  for  the  real  owner  or  party  in 
interest.     While  a  bill  of  lading  is  not  a  negotiable  instrument 

1  First  Nat.  Bank  of  Cincinnati  v.  296 ;  Petitt  v.  First.  Nat.  Bank,  4 
Kelly,  57  N.  Y.  34.  Bush    (Ky.),  334;    First   Nat.  Bank 

2  Stone  V.  Swift,  4  Pick.  (Mass.)  v.  Northern  R.  R.  58  N.  H.  203  ; 
389  ;  and  see  Merchants'  Nat.  Bank  Farmers'  &  Mechanics'  Nat.  Bank 
V.  Bangs,  102  Mass.  291;  Forbes  v.  v.  Logan,  74  N.  Y.  568;  Security 
Boston  &  Lowell  R.  R.  Co.  133  Mass.  Bank  v.  Luttgen,  29  Minn.  363  ; 
1^4-  Holmes    v.    German    Security  Bank, 

8  Prince  v.  Boston  &  Lowell  R.  R.  87  Pa.  St.  525  ;  Emery  v.  Irving  Nat. 

Co.  101  Mass.  542.  Bank,  25   Ohio  St.  360,  366;    Dodge 

*  Barber  v.  Meyerstein,  L.  R.  4  H.  v.  Meyer  (Cal,  1882),  10  Pac.   Coast 

L.  317,  326  ;  S.  C.  L.  R.  2  C.  P.  38,  L.  J.  169. 

661  ;  Bank  of  Rochester  v.  Jones,  4  ^  Dows v. Nat.  Exch.  Bank,  91  U.S. 
N.  Y.  497;  Cayuga  Co.  Nat.  Bank  v.  618  ;  Skilling  v.  Bollinan,  supra;  Far- 
Daniels,  47  N.  Y.  631  ;  Skilling  v.  mers'  &  Mechanics'  National  Bank  v. 
Bollman,  6  Mo.  App.  76  ;  National  Logan,  74  N.Y.  568  ;  Grove  v.  Brien, 
Bank  of  Green  Bay  y.  Dearborn,  115  8  How.  429;  Adoue  v.  Seeligson, 
Mass.  219  ;  Forbes  v.  Boston  &  Lowell  supra;  Forbes  v.  Boston  &  Lowell 
R.  R.  Co.  supra;  McCants  v.  Wells,  R.  R.  Co.  supra;  First  Nat.  Bank  v. 
4  S.  C.  381 ;  Adoue  v.  Seeligson,  54  Northern  R.  R.  supra. 
Tex.  593;   Taylor  v.  Turner,  87    111. 

171 


§  230.]  PLEDGES   OF   BILLS    OF   LADING. 

in  the  sense  in  wliicli  a  bill  of  exchange  or  promissory  note  is 
negotiable,  yet  as  the  representative  of  a  valuable  commodity  it 
is  assignable  to  the  party  entitled  to  control  the  possession  of 
that  commodity,  to  the  same  extent  and  for  the  same  purposes 
as  the  property  itself  would  be  if  corporeally  present.  Inasmuch, 
therefore,  as  these  instruments  are  capable  of  performing  very 
important  functions  in  commercial  transactions,  innocent  holders 
thereof  for  value  ought  to  receive  the  same  protection  as  if  they 
held  possession  of  the  property  itself."  ^ 

A  cotton  factor  in  Galveston  procured  an  advance  of  money 
from  a  banker  on  certain  cotton  in  press,  for  which  he  gave  his 
order  to  deliver  the  cotton  to  a  vessel  then  in  port  loading  for 
Liverpool.  Notice  of  the  order  was  given  to  the  press,  and  the 
master  of  the  vessel  made  and  delivered  to  the  cotton  factor,  a 
bill  of  lading  for  the  cotton,  which  the  factor  indorsed  and  de- 
livered to  the  banker,  with  a  bill  of  exchange  on  Liverpool  at- 
tached. While  the  cotton  was  still  in  press  an  execution  against 
the  factor  was  levied  upon  it ;  but  it  was  held  that  there  had 
been  a  constructive  delivery  of  it  by  the  factor  to  the  banker, 
and  that  the  delivery  of  the  bill  of  lading  was  as  effectual  to 
transfer  the  cotton  as  a  manual  delivery  of  it  would  have  been.^ 
The  delivery  in  this  case  was  held  to  meet  the  special  requisite 
of  an  effectual  pledge,  which  is,  that  no  matter  in  whose  hands 
the  property  may  be  deposited,  it  shall  no  longer  be  subject,  in 
fact  or  in  law,  to  the  dominion,  possession  or  control  of  the 
pledgor,  but  to  that  of  the  pledgee.  The  execution  of  the  de- 
livery order  by  the  factor  to  the  vessel  for  the  cotton  in  press, 
and  the  recognition  and  acceptance  of  it  by  the  press,  constituted 
a  delivery  of  the  cotton  to  the  vessel ;  and  therefore  the  execution 
of  the  bill  of  lading  by  the  master  of  the  vessel,  and  the  delivery 
of  this  to  the  banker,  completed  the  transfer  to  him. 

230.  A  bill  of  lading  merely  represents  the  property  ;  and 
a  transfer  of  the  bill  of  lading  operates  merely  to  transfer  the 
same  rights  of  property  that  would  arise  from  a  transfer  of  the 
property  itself.  One  in  possession  of  property  can  transfer  no 
greater  rights  than  he  possesses  ;  and  so  one  in  possession  of 
a  bill  of  lading  can  transfer  no  greater  rights  than  he  has  in  that. 

■     1  Stone   V.    Wabash,    St.   Louis    &        ^  Adoue  v.  Seeligson,  54  Tex.  593. 
Pacific  Ry.  Co.  9  Biadw.  (111.)  48. 
172 


BILLS   OF   LADING    ARE    SYMBOLS    OF   PROPERTY.         [§  231. 

A  bill  of  lading  is  not  like  a  negotiable  instrument  which  passes 
by  delivery  to  a  bond  fide  transferee  for  value  without  regard  to 
the  title  of  the  person  who  makes  the  transfer.^  "  In  the  hands 
of  the  holder  it  is  evidence  of  ownership,  special  or  general,  of 
the  property  mentioned  in  it  and  of  the  right  to  receive  said 
property  at  the  place  of  delivery.  Notwithstanding  it  is  de- 
signed to  pass  from  hand  to  hand,  with  or  without  indorsement, 
and  it  is  efficacious  for  its  ordinary  purposes  in  the  hands  of  the 
holder,  it  is  not  a  negotiable  instrument  or  obligation  in  the  sense 
that  a  bill  of  exchange  or  a  promissory  note  is.  Its  transfer  does 
not  preclude,  as  in  those  cases,  all  inquiry  into  the  transaction  in 
which  it  originated,  because  it  has  come  into  hands  of  persons 
who  have  innocently  paid  value  for  it.  The  doctrine  of  bond 
fide  purchasers  only  applies  to  it  in  a  limited  sense.''  ^ 

231.  An  indorsement  or  delivery  of  a  bill  of  lading-  as  col- 
lateral security  passes  a  special  property  in  the  goods,  and 
not  an  absolute  legal  title  to  them,  or  the  whole  and  complete 
ownership  of  them.  The  transaction  is  ordinarily  a  pledge  and 
not  a  mortgage,  because  it  is  ordinarily  the  intention  of  the  par- 
ties to  such  a  contract,  either  as  expressed  or  to  be  implied  from 
the  transaction  itself,  that  such  shall  be  its  effect.  The  effect  of 
such  a  transaction  is  well  described  by  Mr.  Justice  Field  in  a  re- 
cent  case   in  the   Queen's   Bench   Division.^     "  Now  advances 

1  Gurney  v.  Behrend,  3  El.  &  Bl.  possession;  and  that  such  indorsement 

622;   Dows  v.  Perrin,  16  N.  Y.  325  ;  has  the  same  effect  as  a  bill  of  sale 

Dows  V.  Greene,  24  N.  Y.  638.  has  by  the  common  law  to  pass  the 

^  Pollard  V.  Vinton,  105  U.  S.  7,  8,  legal  property  in  goods  ;  and  that  the 

per  Miller,  J.  right  of  the  indorser  is  an  equity  mere- 

8  Burdick  v.  Sewell,   10   Q.  B.  D.  ly,  though  this  may  be  recognized  by 

363,  366.  the  common   law  courts.     Upon   this 

The  learned  judge  criticises  the  Ian-  Mr.  Justice  Field  remarks  :    "  I  ap- 

guage  of  Brett,  L.  J.,  in  the  recent  case  prehend,  however,  that  the  language 

of  Glyn  r.  East  and  West  India  Docks  of    the   learned    lord   justice  in  that 

Co.  6  Q.  B.  D.  475,  480,  where  he  says  case,  must  be  read  as  applied  to  the 

that  the  legal  effect  of  the  indorse-  facts  of  that  particular  case,  and  as  I, 

ment  of  the  bill  of  lading  as  security  on   the  hearing  of   that  case,   which 

for  advances  was  to  transfer  the  legal  was  tried  before  me  without  a  jury, 

property  in  the  goods  to  the  indorsee,  came  to  the  conclusion  that  the  inten- 

and  a  consequent  right  in  law  of  im-  tion  of  the  parties   and  the   implica- 

mediate  actual  possession  against  all  tion  of  law  from  the  dealings  was  that 

the  world,  unless  some  one  has  an  in-  the    whole    and   entire    property    did 

dependent  superior  right  of  temporary  pass,  I  agree  in  the  view  of  the  lord 

173 


§  231.]  PLEDGES   OF  BILLS   OF   LADING. 

against  deposit  of  goods  are  probably  some  of  the  most  ordinary- 
transactions  either  of  common  or  commercial  life,  and  if  there  is 
delivery,  and  there  are  no  terms  expressed  either  verbally  or  in 
vrriting  giving  any  larger  effect  to  the  contract,  the  latter  is 
known  as  a  contract  by  way  of  '  pawn  or  pledge,'  the  legal 
effect  of  which  is  that  only  a  special  property  passes  from  the 
borrower  to  the  lender,  although  coupled  with  the  power  of  sell- 
ing the  pledge  and  transferring  the  whole  property  in  it  on  de- 
fault in  payment  at  the  stipulated  time,  if  there  be  any,  or  at  a 
reasonable  time  after  demand  and  non-payment,  if  no  time  for 
repayment  be  agreed  upon.i  Moreover,  until  such  default,  al- 
though the  lender  may  assign  the  pledge  to  another  to  the  lim- 
ited extent  of  his  own  interest  in  it,  i.  e.,  as  a  security  for  the 
amount  due,  he  cannot  pass  the  whole  and  entire  property  in  the 
goods  to  another,  for  by  the  contract  the  general  property  re- 
mains in  the  pawnor,  who  by  virtue  of  that  general  property 
may  determine  the  special  property  by  tender  of  the  secured 
amount,  and  may  immediately  recover  the  pledge  on  refusal  in  a 
possessory  action.  Delivery  is  however  an  essential  element  of 
every  contract  by  way  of  pledge.  Such  delivery  may  be  actual, 
as  in  the  every  day  life  transaction  with  the  pawnbroker,  or  it 
may  be  constructive,  either  by  making  the  custody  of  the  pledgor 
that  of  the  pledgee,^  or  if  the  goods  are  still  under  the  opera- 
tion of  a  bill  of  lading,  by  indorsement  of  the  bill ;  and  it  is  the 

justice  thus  limited  and  understood."  expressions  which  appear  to  be  to  the 

Bramwell,  L.  J.,  however,  considered  effect   that  by   the   indorsement    the 

the  transaction    in   that   case  as   not  whole  property  passed.    But  he  doubts 

amounting  to  anything  more   than   a  whether   these   expressions    were   in- 

pledge,  giving  the  indorser  of  the  bill  tended  to  mean   anything  more  than 

of  lading  a  special  property  and  right  that  sufficient  property  passed  to  en- 

01  possession.  able  the  pledgee  to  maintain  an  action 

Mr.  Justice  Field  then  proceeds  to  for  conversion,  and  that  the  indorse- 

review  some  of  the  cases  as  to  the  ment,  per  se,  amounted  to  a  delivery, 

effect  of  an  indorsement  of  a  bill  of  He  comes  to  the  conclusion  as  stated 

lading  as  collateral  security,  from  the  in  the  text  that  by  such  an  indorse- 

leading  case  of  Lickbarrow  v.  Mason,  ment  the  parties  intend  nothing  more 

1    Sm.  L.  C.  7th  Eng.  ed.  p.  756,  down  than  a  pledge  :    and  this  is   the  gen- 

to  Meyerstein  v.  Barber,  L.  R.  4  H.  L.  erally  accepted  doctrine. 

317.     In  regard  to  the  latter  case  he  ^  Pothonier  v.  Dawson,   Holt  N.  P. 

says  that  while  in  the  court  of  Com-  383  ;  Donald  v.  Suckling,  L.  R.  1  Q. 

mon  Pleas  and  in  the  Exchequer  Cham-  B.  585. 

her  everybody  treated  the  transaction  2  Reeves  v.  Capper,   5   Bing.  N.  C. 

as  a  pledge.  Lord  Hatherly  and  Lord  136,  140. 
Westbury  in  the  House  of  Lords  used 

174 


BILLS   OF   LADING   ARE   SYMBOLS   OF   PROPERTY.        [§  232. 

latter  form  of  the  transaction  which  is  one  very  commonly  adopted 
in  commerce.  As,  however,  in  the  case  of  land,  by  a  conveyance 
by  way  of  mortgage,  so  also  in  that  of  goods,  a  more  effective 
security  may  be  created  by  bill  of  sale,  and  by  the  usual  terms 
of  such  an  instrument  the  whole  and  entire  property  in  the 
goods  is  assigned  and  passes  to  the  lender  subject  to  usual  stipu- 
lations as  to  possession  and  sale,  but  leaving  nothing  in  the  way 
of  legal  property  in  the  borrower,  only  an  equitable  right  to  re- 
deem. This  latter  form  of  security,  although  very  usual  in  money- 
lending  transactions  of  a  mere  individual  character,  is  not,  I  be- 
lieve, usually  adopted  in  those  purely  commercial  transactions 
where  advances  are  obtained  against  goods  represented  either  by 
warrants  or  bills  of  lading  ;  these  being  two  of  the  ordinary 
modes  by  which  goods  are  made  a  security  for  an  advance  and 
within  one  of  which  the  transaction  now  in  question  must  be 
ranged.  The  question  in  the  present  case  -resolves  itself  into 
whether  the  security  was  intended  to  operate,  or  by  implication 
of  law  arising  upon  the  undisputed  facts  did  operate,  in  the  same 
way  as  an  assignment  by  bill  of  sale  or  as  a  mere  pledge." 

In  this  case  it  was  determined  that  the  shipper  of  goods  does 
not,  by  simply  indorsing  the  bill  of  lading,  and  delivering  it  to 
the  indorsee,  by  way  of  security  for  money  advanced  by  him, 
pass  the  property  in  the  goods  to  such  indorsee,  so  as  to  make 
him  directly  liable  to  the  shipowner  for  freight  under  a  statute 
which  transfers  the  liability  for  freight  from  the  shipper  to  the 
indorsee  of  a  bill  of  lading. 

232.  A  previously  existing  debt  is  a  sufficient  considera- 
tion for  the  delivery  of  a  bill  of  lading.i  There  are  authori- 
ties which  hold  that  a  consideration  paid  at  the  time  of  the 
indorsement  or  delivery  of  the  bill  of  lading  is  essential  for 
passing  the  title  to  the  property  as  against  the  consignor's  right 
to  stop  the  goods  in  transitu,  or  as  against  a  subsequent  pur- 
chaser of  tlie  goods  for  a  new  consideration.^ 

^  Leask  v.  Scott,  2  Q.  B.  D.   376;  tempts  on  the  part  of  factors  to  pledge 

Skilling  t;.  Bolliiian,  6  Mo.  App.  76  ;  their  principals'  goods   for  their  own 

Triedemanv.  Knox,  53  Md.  612.     See  debts,  and    do    not    support  his  text. 

§§  107-133.  Newsom  v.  Thornton,  6  East,  1 7,  was 

2  Parsons   on   Shipping,  193.     The  decided,  not  upon  the  ground  that  an 

cases  cited   by  the   learned  author  in  assignment  for  prior  advances  passed 

support  of  this  view  arose  out  of  at-  no  title  to  the  bill  of  lading,  but  that  a 

175 


;      233-235.]        pledges  of  bills  of  lading. 

But  the  prevailing  rule  is,  that  a  delivery  of  a  bill  of  lading 
as  security  for  a  past  debt  is  equally  effectual  with  a  delivery  for 
a  present  advance  to  vest  the  property  in  the  creditor. 

II.  How  far  Negotiable  Instruments. 

233.  A  bill  of  lading  whereby  the  carrier  engages  to 
deliver  goods  to  the  shipper  or  his  order  is  quasi  negoti- 
able ;  but  not  negotiable  in  the  manner  that  bills  of  exchange 
and  promissory  notes  are  negotiable.^  They  are  not  negotiable 
in  this  sense  even  when  made  negotiable  in  terms  by  statute,^ 
unless  in  express  terms  made  negotiable  in  the  same  sense  that 
bills  of  exchange  and  promissory  notes  are  negotiable,  as  is  the 
case  in  Maryland.^ 

As  the  statutes  of  several  states  introduce  an  important  qualifi- 
cation of  the  common  law  doctrine  upon  this  subject,  and  as  they 
are  enacted  in  different  terms,  a  full  statement  of  the  statutes  is 
here  given. 

234.  California.*  —  All  the  title  to  the  freight  which  the  first 
holder  of  a  bill  of  lading  had  when  he  received  it,  passes  to  every 
subsequent  indorsee  thereof  in  good  faith,  and  for  value,  in  the 
ordinary  course  of  business,  with  like  effect  and  in  like  manner, 
as  in  the  case  of  a  bill  of  exchange.  When  a  bill  of  lading  is 
made  to  "  bearer,"  or  in  equivalent  terms  a  simple  transfer  thereof, 
by  delivery,  conveys  the  same  title  as  an  indorsement. 

235.  Maryland.^  —  All  bills  of  lading  and  all  receipts,  vouch- 

factor  bad  no  right  to  pledge  the  bill.  ^  Rowley    v.     Bigelow,     12     Pick. 

The  case  was,  that  the  bolder  of  a  (Mass.)  307,  per  Shaw,  C.  J. ;   Allen 

bill  of  lading,  the  factor  of  the  con-  v.  Williams,  lb.  297;  Davenport  Nat. 

signor,  attempted  to  pledge  the  bill  of  Bank  v.  Homeyer,  45  Mo.  145;    Bai*- 

lading  on  condition  of  advances  to  be  nard  v.  Campbell,  56  N.  Y.  462. 

made  ;  the  advances  were  not  made  ;  ^  See  §  241. 

the  pledgee  claimed  to  bold  the  goods  ^  See  §  235. 

for  former  advances  made  by  him  to  *  Codes    &    Stats.    1876,  §§     7127, 

the  factor,  and  it  was  held  that  the  7128;  §§  2127,  2128  of  Civil  Code, 

factor   had   no  power   to   pledge  the  ^  Rev.  Code  1878,  p.  298,  art.  35, 

goods  of  his  principal  by  indorsement  §12;    Act   of    1876,    c.    262.      This 

and    delivery   of   the   bill    of  lading,  statute   is    more    comprehensive   and 

Warner  v.  Martin,  11  How.  209,  is  a  sweeping  in  its  phraseology  and  effect 

similar  case,  and  turns  altogether  upon  than    the    statutes   of    Missouri    and 

the  question  of  the  power  of  a  factor  Pennsylvania   recently   construed    by 

to  pledge.     Per  Bakewell,  J.,  in  Skil-  the  Supreme  Court  in  Shaw  v.  R.  R. 

ling  V.  BoUman,  6  Mo.  App.  76.  Co.    101   U.   S.  557.     Shortly   before 

176 


HOW   FAR   NEGOTIABLE   INSTRUMENTS.  [§  236. 

ers,  or  acknowledgments  whatsoever,  in  writing,  in  the  nature 
or  stead  of  bills  of  lading  for  goods,  chattels,  or  commodities  of 
any  kind,  to  be  transported  on  land  or  watei',  or  on  both,  which 
shall  be  executed  in  this  state,  or  being  executed  elsewhere,  shall 
provide  for  the  delivery  of  goods,  chattels,  or  commodities  of 
any  kind  within  this  state,  and  all  warehouse,  elevator,  or  storage 
receipts  whatever,  for  goods,  chattels,  or  commodities  of  any  kind 
stored  or  deposited,  or  in  said  receipts  stated  or  acknowledged  to 
be  stored  or  deposited  for  any  purpose  in  any  warehouse,  elevator, 
or  other  place  of  storage  or  deposit  in  this  state,  shall  be,  and 
they  are  hereby,  constituted  and  declared  to  be  negotiable  instru- 
ments and  securities,  unless  it  be  provided  in  express  terms  to 
the  contrary  on  the  face  thereof,  in  the  same  sense  as  bills  of 
exchange  and  promissory  notes,  and  full  and  complete  title  to 
the  property  in  said  instruments  mentioned  or  described,  and  all 
rights  and  remedies  incident  to  such  title,  or  arising  under  or 
derivable  from  the  said  instruments,  shall  inure  to,  and  be  vested 
in,  each  and  every  hond  fide  holder  thereof  for  value,  altogether 
unaffected  by  any  rights  or  equities  whatsoever  of  or  between 
the  original  or  any  other  prior  holders  of  or  parties  to  the  same, 
of  which  such  bond  fide  holder  for  value  shall  not  have  had 
actual  notice  at  the  time  he  became  such. 

Under  this  statute  an  antecedent  debt  is  sufficient  to  constitute 
a  purchase  for  value  of  a  bill  of  lading,  and  a  party  receiving  it 
in  payment  of,  or  as  security  for,  such  a  debt,  becomes  a  pur- 
chaser and  bond  fide  holder  for  value  as  effectually  as  if  it  had 
been  a  bill  of  exchange  or  promissory  note.^ 

236.  Minnesota.^  —  Warehouse  receipts,  given  for  any  goods, 
wares  and  merchandise,  grain,  flour,  produce,  or  other  com- 
modity, stored  or  deposited  with  any  warehouseman,  or  other 
person  or  corporation  in  this  state,  or  bills  of  lading,  or  receipts 
for  the  same,  when  in  transit  by  cars  or  vessels  to  any  such  ware- 
houseman, or  other  person,  shall  be  negotiable,  and  may  be  trans- 

this  statute  was  passed,  the  Supreme  statute  was  evidently  passed  in  order 

Court  of  Maryland  had  decided  that  to  change  the  law  as  fixed  by  the  de- 

the  law  does  not  regard  bills  of  lading  cision,  and  uses  the  very  language  of 

as   negotiable   in   the    same    sense   in  the  decision.     Tiedeman  v.  Knox,  53 

which  a  bill  of  exchange  and  promis-  Md.  CI 2. 

sory  note  is  so  (Bait.  &  Ohio  K.  R.  Co.  ^  Tiedeman  v.  Knox,  xupra. 

V.  Wilkins,  44  Md.  11,  27),  and  the  ^  y^ats.  1878,  c.  124,  §  17. 

12  177 


§  237.]  PLEDGES   OF   BILLS   OF   LADING. 

ferred  by  indorsement  and  delivery  of  such  receipt  or  bill  of 
lading ;  and  any  person  to  whom  the  said  receipt  or  bill  of  lading 
may  be  transferred,  shall  be  deemed  and  taken  to  be  the  owner 
of  the  goods,  wares  or  merchandise  therein  specified,  so  as  to 
give  security  and  validity  to  any  lien  created  on  the  same  subject 
to  the  payment  of  freight  and  charges  thereon  ;  provided,  that 
all  warehouse  receipts,  or  bills  of  lading  which  shall  have  the 
words  "  not  negotiable  "  plainly  written  or  stamped  on  the  face 
thereof,  shall  be  exempt  from  the  provisions  of  this  act.^ 

237.  Missouri.2  —  All  receipts  issued  or  given  by  any  ware- 
houseman, or  other  person  or  firm,  and  all  bills  of  lading,  trans- 
portation receipts,  and  contracts  of  affreightment,  issued  or  given 
by  any  person,  boat,  railroad,  or  transportation  or  transfer  com- 
pany, for  goods,  wares,  merchandise,  grain,  flour,  or  other  produce 
shall  be  and  ai"e  hereby  made  negotiable  by  written  indorsement 
thereon  and  delivery  in  the  same  manner  as  bills  of  exchange  and 
promissory  notes  ;  and  no  printed  or  written  conditions,  clauses, 
or  provisions  inserted  in  or  attached  to  any  such  receipts,  bills  of 
lading,  or  contracts,  shall  in  any  way  limit  the  negotiability  or 
affect  any  negotiation  thereof,  nor  in  any  manner  impair  the 
right  and  duties  of  the  parties  thereto,  or  persons  interested 
therein  ;  and  every  such  condition,  clause,  or  provision  purporting 
to  limit  or  affect  the  rights,  duties,  or  liabilities  created  or  de- 
clared in  this  act,  shall  be  void,  and  of  no  force  or  effect. 

Warehouse  receipts  given  by  any  warehouseman,  wharfinger, 
or  other  person  or  firm,  for  any  goods,  wares,  merchandise,  grain, 
flour,  or  other  pi'oduce  or  commodity,  stored  or  deposited,  and  all 
bills  of  lading  and  transportation  receipts  of  every  kind,  given 
by  any  carrier,  boat,  vessel,  railroad,  transportation,  or  transfer 
company,  may  be  transferred  by  indorsement  in  writing  thereon, 
and  the  delivery  thereof  so  indorsed ;  and  any  and  all  persons  to 
whom  the  same  may  be  so  transferred  shall  be  deemed  and  held 
to  be  the  owners  of  such  goods,  wares,  merchandise,  grain,  flour, 
or  other  produce  or  commodity,  so  far  as  to  give  validity  to  any 
pledge,  lien,  or  transfer  given,  made,  or  created  thereby,  as  on 
the   faith    thereof,  and  no  property  so  stored   or  deposited,  as 

1  For  construction  of  this  act,  see  ^  ^  s_  i879,  p.  88,  §§  558,  559  ; 
McCabe  v.  McKinstry,  5  Dill.  509;  Laws  1869,  p.  91,  §  1.  See  Central 
Raliilly  v.  Wilson,  3  Dill.  420.  Savings  Bank  t'.  Garrison,  2  Mo.  App. 

58. 
178 


HOW   FAR   NEGOTIABLE  INSTRUMENTS.       [§§  238,  239. 

specified  in  such  bills  of  lading  or  receipts,  shall  be  delivered, 
except  on  surrender  and  cancellation  of  such  receipts  and  bills 
of  lading ;  provided,  however,  that  all  such  receipts  and  bills  of 
lading,  which  shall  have  the  words  "  not  negotiable  "  plainly 
written  or  stamped  on  the  face  thereof,  shall  be  exempt  from  the 
provisions  of  this  act.^ 

238.  New  York.^  —  Bills  of  lading  for  any  goods,  wares,  mer- 
chandise, grain,  flour,  produce,  or  other  commodity,  may  be 
transferred  by  indorsement  thereof ;  and  any  person  to  whom 
the  same  may  be  so  transferred  shall  be  deemed  and  taken  to  be 
the  owner  of  the  goods  therein  specified,  so  far  as  to  give  validity 
to  any  pledge,  lien,  or  transfer  made  or  created  by  such  person. 
But  this  provision  does  not  apply  to  bills  of  lading  which  shall 
have  the  words  "  not  negotiable  "  plainly  written  or  stamped  on 
the  face  thereof. 


239.    Pennsylvania.^  —  Warehouse   receipts   given    for    any 
goods,  wares,  merchandise,  grain,  flour,   produce,  petroleum  or 


1  It  is  further  provided  in  Missouri 
(R.  S.  1879,  vol.  1,  c.  24,  §  1348), 
that  if  any  commission  merchant, 
agent,  or  other  person,  storing  or 
shipping  any  grain,  flour,  or  other 
produce  or  commodity,  or  any  person 
to  whom  any  such  property  is  con- 
Bigned,  and  who  shall  come  in  posses- 
sion of  a  bill  of  lading  or  warehouse 
receipt  for  such  property,  for  or  on 
account  of  another  person,  or  other 
persons,  shall  hypothecate,  negotiate, 
or  pledge  such  bill  of  lading  or  ware- 
house receipt,  without  the  written 
authority  therefor  of  the  owner  or 
consignor  of  such  property ;  or  if, 
having  so  disposed  of  any  such  bill  of 
lading  or  warehouse  receipt,  shall  fail 
to  account  for  and  pay  over  the  pro- 
ceeds thereof  forthwith  to  his  prin- 
cipal, or  the  owner  of  such  property, 
in  either  or  any  of  such  cases,  he  shall 
be  adjuilgcd  guilty  of  fraud,  and  shall, 
on  conviction,  be  punished  by  fine  not 
exceeding  five  thousand  dollars,  or  by 
imprisonment  in   the  penitentiary  for 


a  term  not  exceeding  five  years,  or 
by  both  such  fine  and  imprisonment; 
provided,  that  nothing  herein  shall  be 
construed  to  prevent  such  consignee 
or  other  person  lawfully  possessed  of 
such  bill  of  lading  or  warehouse  re- 
ceipt from  pledging  the  same,  to  the 
extent  of  raising  sufficient  means 
thereby  to  pay  charges  for  storage 
and  shipment,  or  advances  drawn  for 
on  such  property  by  the  owner  or  con- 
signor thereof;  and  a  draft  or  order 
by  such  owner  or  consignor  for  ad- 
vances shall  be  held  and  taken  to  be 
"written  authority,"  within  the  mean- 
ing of  this  section,  for  the  hypotheca- 
tion of  such  bill  of  lading  or  ware- 
house receipt,  to  the  extent,  and  only 
to  the  extent,  of  raising  the  means 
to  meet  such  draft,  and  to  pay  such 
freight  and  storage. 

2  3    R.   S.   7th  ed.    1882,   p.    2260. 
See  as   to  Warehouse    Receipts,  Ch. 

VII. 

8  Brightly's  Purdon's  Dig.  1873,  p. 
114,§1. 

179 


§  2-40.]  PLEDGES   OF   BILLS   OF   LADING. 

other  commodity,  stored  or  deposited  with  any  warehouseman, 
wharfinger  or  other  person  in  this  state,  or  bills  of  lading  or  re- 
ceipts for  the  same  when  in  transit  by  cars  or  vessels  to  any  such 
warehouseman,  wharfinger,  or  other  person,  shall  be  negotiable, 
and  may  be  transferred  by  indorsement  and  delivery  of  said  re- 
ceipt or  bill  of  lading ;  and  any  person  to  whom  the  said  receipt 
or  bill  of  lading  may  be  so  transferred  shall  be  deemed  and 
taken  to  be  the  owner  of  the  goods,  wares,  and  merchandise 
therein  specified,  so  as  to  give  security  and  validity  to  any  lien 
created  on  the  same,  subject  to  the  payment  of  freight  and 
charges  thereon  ;  and  no  property  on  which  such  lien  may  have 
been  created  shall  be  delivered  by  said  warehouseman,  wharf- 
inger, or  other  person,  except  on  the  surrender  and  the  cancella- 
tion of  said  original  receipt  or  bill  of  lading  ;  or,  in  case  of 
partial  sale  or  release  of  the  said  merchandise,  by  the  written 
assent  of  the  holder  of  said  receipt  or  bill  of  lading,  indorsed 
thereon  ;  provided,  that  all  warehouse  receipts  of  bills  of  lading 
which  shall  have  the  words,  "  not  negotiable,"  plainly  written  or 
stamped  on  the  face  thereof,  shall  be  exempt  from  the  provisions 
of  this  act. 

240.  Wisconsin.^  —  Warehouse  receipts,  bills  of  lading,  or 
railroad  receipts  given  for  any  goods,  wares,  merchandise,  lum- 
ber, timber,  grain,  flour,  or  other  produce  or  commodity  stored^ 
shipped,  or  deposited  with  any  warehouseman,  wharfinger,  ves- 
sel, boat  or  railroad  company  or  other  person,  on  the  face  of 
which  shall  not  be  plainly  written  the  words  "  not  negotiable," 
may  be  transferred  by  delivery  with  or  without  indorsement 
thereof ;  and  any  person  to  whom  the  same  may  be  so  transferred, 
shall  be  deemed  and  taken  to  be  the  owner  of  the  goods,  wares, 
and  merchandise  therein  specified,  so  far  as  to  give  validity  to 
any  pledge,  lien,  or  transfer  made  or  created  by  such  person  or 
persons  ;  but  no  such  property  shall  be  delivered  except  on  sur- 
render and  cancellation  of  said  original  receipt  or  bill  of  lading 
or  the  indorsement  of  such  delivery  thereon,  in  case  of  partial 
delivery. 

Any  such  receipt,  bill  of  lading,  voucher,  or  other  document 
by  any  warehouseman,  wharfinger,  master  of  a  vessel  or  boat,  or 

1  R.  S.  1878,  p.  1011,  §  4194;  p.  1049,  §  4425. 

180 


HOW  FAR  NEGOTIABLE  INSTRUMEN-TS.  [§  241. 

any  officer,  agent  or  clerk  of  any  railroad,  express  or  transporta- 
tion company  shall  be  transferable  by  delivery  thereof  without 
indorsement  or  assignment,  and  any  person  to  whom  the  same  is 
so  transferred,  shall  be  deemed  and  taken  to  be  the  owner  of  the 
property  therein  specified  so  far  as  to  give  validity  to  any  pledge, 
lien  or  transfer,  made  or  created  by  such  person,  unless  such  re- 
ceipt, bill  of  lading,  voucher,  or  other  document  shall  have  the 
words,  "  not  negotiable,"  plainly  written  or  stamped  on  the  face 
thereof. 

241.  A  statute  declaring  bills  of  lading  negotiable,  does 
not  give  them  all  the  qualities  of  negotiable  bills  and  notes.^ 
Negotiation  primarily  means  a  transfer  by  indorsement  and  de- 
livery, giving  the  indorsee  a  right  to  sue  upon  the  contract  in  his 
own  name.  In  regard  to  bills  and  notes  certain  other  conse- 
quences generally  follow  negotiability,  such  as  the  liability  of  the 
indorser  after  due  demand  and  notice,  and  the  right  of  a  holder 
in  good  faith  and  for  value  before  maturity  to  full  protection 
against  even  the  true  owner,  so  that  nothing  short  of  mala  fides 
on  his  part  will  defeat  his  right.  Bills  of  exchange  and  promis- 
sory notes  are  contracts  exceptional  in  their  character,  and  have 
been  given  their  exceptional  character  because  the  interests  of 
trade  required  that  they  should  be  fully  protected  in  favor  of 
bond  fide  holders.  But  this  reason  does  not  apply  to  bills  of  lad- 
ing. "  Bills  of  lading,"  says  Mr.  Justice  Strong,  of  the  Supreme 
Court,2  "  are  regarded  as  so  much  cotton,  grain,  iron,  or  other 
articles  of  merchandise.  The  merchandise  is  very  often  sold  or 
pledged  by  transfer  of  the  bills  which  cover  it.  They  are,  in 
commerce,  a  very  different  thing  from  bills  of  exchange  and 
promissory  notes,  answering  a  different  purpose  and  performing 
different  functions.  It  cannot  be,  therefore,  that  the  statute 
which  made  them  negotiable  by  indorsement  and  delivery,  or 
negotiable  in  the  same  manner  as  bills  of  exchange  and  prom- 

^  Shaw  V.  Railroad  Co.  101  U.  S.  law  as  it  had  just  previously  been  es- 

557,  565;  ,S'.  C.  37  Leg.  Int.  135  ;  10  tablished    by   the   Supreme    Court  of 

N.  Y.  Weekly  Dig.  263 ;   10  Rep.  129.  that  state  in  Bait.  &  Ohio  R.  R.  Co. 

In  Maryland  the  statute  is  broader  v.  Wilkins,  44    Md.  27.     See  Tiede- 

in   terms,  and  makes  bills  of  lading  man  v.  Knox,  53  Md.  612,  where  this 

negotiable  in  the  same  sense  as  bills  of  change  is  commented  upon, 
exchange  and    promissory  notes.     In         *  Shaw  v.  Railroad  Co.  supra. 
this  respect   the  statute  changes  the 

181 


§  242.]  PLEDGES   OF   BILLS   OF  LADING. 

issory  notes  are  negotiable,  intended  to  change  totally  their  char- 
acter, put  them  in  all  respects  on  the  footing  of  instruments 
which  are  the  representatives  of  money,  and  charge  the  negotia- 
tion of  them  with  all  the  consequences  which  usually  attend  or 
follow  the  negotiation  of  bills  and  notes.  Some  of  these  conse- 
quences would  be  very  strange,  if  not  impossible ;  such  as  the 
liability  of  indorsers,  the  duty  of  demand  ad  diem,  notice  of  non- 
delivery by  the  carrier,  &c.,  or  the  loss  of  the  owner's  property 
by  the  fraudulent  assignment  of  a  thief.  If  these  were  intended, 
surely  the  statute  would  have  said  something  more  than  merely 
make  them  negotiable  by  indorsement.  No  statute  is  to  be  con- 
strued as  altering  the  common  law,  further  than  its  words  im- 
port. It  is  not  to  be  construed  as  making  any  innovation  upon 
the  common  law  which  it  does  not  fairly  express.  Especially  is 
so  great  an  innovation  as  would  be  placing  bills  of  lading  on  the 
same  footing  in  all  respects  with  bills  of  exchange,  not  to  be  in- 
ferred from  words  that  can  be  fully  satisfied  without  it.  The  law 
has  most  carefully  protected  the  ownership  of  personal  property, 
other  than  money,  against  misappropriation  by  others  than  the 
owner,  even  when  it  is  out  of  his  possession.  This  protection 
would  be  largely  withdrawn  if  the  misappropriation  of  its  sym- 
bol or  representative  could  avail  to  defeat  the  ownership,  even 
when  the  person  who  claims  under  a  misappropriation  had  reason 
to  believe  that  the  person  from  whom  he  took  the  property  had 
no  right  to  it."  Therefore  it  was  held,  where  a  bill  of  lading  of 
certain  cotton  was  assigned  by  indorsement  to  a  bank  as  collat- 
teral  security,  and  without  negligence  on  the  part  of  the  bank, 
was  stolen  fom  it,  and  indorsed  to  a  third  person  for  an  advance 
made  under  circumstances  which  afforded  him  reason  to  believe 
that  the  bill  of  lading  had  already  been  pledged  to  secure  the 
payment  of  an  outstanding  draft,  that  the  person  so  taking  it 
was  not  entitled  to  hold  the  merchandise  covered  by  the  bill 
against  its  true  owuer.i 

242.  The  rights  of  a  pledgee  of  a  bill  of  lading  by  in- 
dorsement or  delivery  are  the  rights  of  a  pledgee  of  the  prop- 
erty itself  by  a  delivery  of  it.  A  bill  of  lading,  though  nego- 
tiable in  form,  is  not  a  negotiable   instrument,  like  a  bill  of 

1  Shaw  V.  Railroad  Co.  101  U.  S.  557  ;  StoUenwerck  v.Thacher,  115  Mass.  224. 
182 


HOW  FAR  NEGOTIABLE  INSTRUMENTS.  [§  243. 

exchange,  but  a  symbol  or  representative  of  the  goods  to  which 
it  relates  ;  and  the  rights  arising  from  a  transfer  of  a  bill  of  lad- 
ing correspond,  not  to  those  arising  from  the  transfer  of  a  nego- 
tiable instrument,  but  to  those  arising  from  a  delivery  of  the 
property  under  like  circumstances.^  "  I  never  heard  it  argued," 
said  Parke,  B.,  in  Thompson  v.  Dominy,^  that  a  contract  was 
transferable,  except  by  the  law  merchant,  and  there  is  nothing 
to  show  that  a  bill  of  lading  is  transferable  under  any  custom  of 
merchants.  It  transfers  no  more  than  the  property  in  the  goods  ; 
it  does  not  transfer  the  contract."  In  the  same  case,  Alderson, 
B.,  added  :  "  I  am  of  the  same  opinion.  This  is  another  instance 
of  the  confusion,  as  Lord  EUenborough,  in  Waring  v.  Cox  ^  ex- 
presses it,  which  '  has  arisen  from  similitudinous  reasoning  upon 
this  subject.'  Because  in  Lickbarrow  v.  Mason,  a  bill  of  lading 
was  held  to  be  negotiable,  it  has  been  contended  that  that  instru- 
ment possesses  all  the  properties  of  a  bill  of  exchange  ;  but  it 
would  lead  to  absurdity  to  carry  the  doctrine  to  that  length. 
The  word  '  negotiable '  was  not  used  in  the  sense  in  which  it  is 
used  as  applicable  to  a  bill  of  exchange,  but  as  passing  the  prop- 
erty in  the  goods  only." 

While  generally  an  indorsee  for  value  of  a  bill  of  lading  may 
bring  an  action  in  his  own  name  for  the  goods,  he  cannot  gen- 
erally maintain  an  action  in  his  own  name  on  the  instrument 
itself.* 

243.  The  indorsement  of  a  bill  of  lading  by  the  shipper 
only  assigns  his  rights  and  the  title  to  the  property  called  for 
by  the  bill.  It  involves  no  duty  on  his  part  to  do  anything  to- 
ward forwarding  the  property,  and  therefore  he  is  not  liable  in  as- 
sumpsit for  failure  to  ship  and  deliver  the  property.  If  the  bill  of 

1  Stollenwerck  v.  Thacher,  115  Y.)  310,  316 ;  Blanchard  u.  Page,  8 
Mass.  224,  per  Gray,  C.  J. ;  Forbes  v.     Gray  (Mass.),  281,  298. 

Boston  &  Lowell  R.  R.  Co.  133  Mass.  This,  of  course,  is  a  statement  of 

154;    Western   Union    R.   R.  Co.  v.  the  common  law  of  the  subject.    Under 

Wagner,  65  111.  197;  First  Nat.  Bank  modern  codes  of   procedure  the  real 

V.  Northern  R.  R.  58  N.  H.  203;  Lin-  party  in  interest  is  authorized  to  sue 

eker  v.  Ayeshford,  1  Cal.  75 ;  Moore  on   any  contract  or   chose  in   action 

V.  Robinson,  62  Ala.  537.  which  has  been  transferred  to  him  in 

2  14  M.  &  W.  403.  his  own  name.  Merchants'  Bank  v. 
8  1  Camp.  369.  Union  R.  R.  &  Trans.  Co.  69  N.  Y. 
*  Thompson    v.  Dominy,   14    M.  &  373,  380,  per  Miller,  J. 

W.  403  ;  Dows  v.  Cobb,  12  Barb.  (N. 

183 


§§  244,  245.]  PLEDGES   OF   BILLS   OF   LADING. 

ladino-  be  fictitious,  or  if  there  was  any  fraud  practised  in  obtain- 
ing advances  upon  a  transfer  of  it,  any  remedy  that  the  pledgee 
may  have  is  one  for  that  special  wrong.  He  cannot  imply  from 
the  indorsement  of  the  bill  of  lading  a  promise  to  perform  what 
the  carrier  had  agreed,  or  purported  to  have  agreed,  to  do.^ 

244.  One  making  advances  upon  a  bill  of  lading  to  one 
who  is  not  the  owner  of  the  property  therein  described,  ac- 
quires no  right  of  property  therein.  Although  possession  is 
primd  facie  evidence  of  ownership,  yet  that  alone  does  not 
deprive  the  true  owner  of  his  title.  "  Taking  possession  of  the 
property,  shipping  it,  obtaining  bills  of  lading  from  the  carriers, 
indorsing  away  the  bills  of  lading,  or  even  selling  the  property 
and  obtaining  a  full  price  for  it,  can  have  no  effect  upon  the 
right  of  the  owner.  Even  a  horid  fide  purchaser  obtains  no 
right  by  a  purchase  from  one  who  is  not  the  owner,  or  not 
authorized  to  sell."  ^  Therefore,  if  an  owner  of  cotton  author- 
izes another  person  to  ship  it,  but  gives  the  agent  no  authority 
to  ship  in  his  own  name,  the  latter,  by  shipping  in  his  own  name, 
and  taking  a  bill  of  lading  accordingly,  cannot,  by  negotiating 
this,  charge  the  cotton  with  the  payment  of  advances  made  on 
the  faith  of  such  bill  of  lading.^ 

III.  ffow  far  binding  upon  the  Carrier. 

245.  A  bill  of  lading  represents  the  goods  to  be  in  the 
hands  of  the  carrier.  If,  through  inadvertence  or  otherwise, 
the  bill  of  lading  is  signed  before  the  goods  have  come  to  hand, 
but  they  are  afterwards  received  and  shipped,  the  bill  of  lading 
operates  upon  the  goods  by  way  of  relation  and  estoppel ;  and 

1  Maybee  v.  Tregent,  47  Mich.  495 ;  transfer  a  better  title  thau  he  has  him- 
S.  C.  11  N.  W.  Rep.  287,  self,  or  than  he  has  been  authorized 

2  The  Idaho,  93  U.  S.  575,  583,  per  by  the  owner  to  grant.  Exceptions 
Strong,  J.  And  so  in  Covill  v.  Hill,  in  favor  of  trade  are  allowed  in  the 
4  Den.  (N.  Y.)  323,  327,  it  was  said:  case  of  money  and  negotiable  instru- 
"  It  is  a  principle  of  the  common  law  ments.  But  as  to  other  personal  chat- 
which  has  but  few  exceptions,  that  a  tels,  the  mere  possession,  by  whatever 
man  cannot  be  divested  of  his  prop-  means  it  may  have  been  acquired,  if 
erty  without  his  consent.  And  al-  there  be  no  other  evidence  of  prop- 
though  possession  is  one  of  the  most  erty,  or  authority  to  sell,  from  the 
usual  evidences  of  title  to  personal  true  owner,  will  not  enable  the  seller 
chattels,  yet,  as  a  general  rule,  mere  to  give  a  good  title." 

possession  will  not  enable  a  man  to        ^  Moore  v.  Robinson,  62  Ala.  537. 

184 


HOW   FAR  BINDING   UPON   THE   CARRIER. 


[§  246. 


one  who  accepts  or  discounts  drafts  on  the  security  of  such  bill 
of  lading,  obtains  a  title  to  the  goods  as  valid  and  effectual  as 
he  could  obtain  by  an  actual  delivery  to  him  of  the  goods  them- 
selves.^ 


246.  A  carrier  is  not  bound  by  a  bill  of  lading  signed  by 
an  agent  without  an  actual  delivery  of  the.  goods  to  the  car- 
rier, although  the  bill  of  lading  be  assigned  to  a  person  who  in 
good  faith  discounts  a  draft  attached  to  it.  It  has  long  been  the 
prevailing  rule  that  the  master  of  a  ship  cannot  bind  the  owners 
by  issuing  bills  of  lading  for  goods  not  actually  delivered  on 
board  the  ship.^  The  same  rule  applies  with  greater  force  in  the 
case  of  an  agent  of  a  railroad  company.^  In  other  words,  a  bill 
of  lading,  whether  issued  by  the  master  of  a  vessel  or  by  the  agent 
of  any  carrier,  is  not  a  commercial  or  negotiable  paper  in  the 
hands  of  an  innocent  party,  which  precludes  or  estops  the  owner 
from  denying  that  the  freight  was  received  as  therein  admitted.* 
In  a  very  recent  case  before  the  Supreme  Court  of  the  United 
States,  involving  the  point  under  consideration,  Mr.  Justice 
Miller  said  :  ^  "  A  bill  of  lading  is  an  instrument  well  known  in 
commercial  transactions,  and  its  character  and  effect  have  been 


1  Rowley  v.  Bigelow,  12  Pick. 
(Mass.)  307,  312. 

2  Brown  v.  Powell  Diiffryn  Steam 
Coal  Co.  L.  R.  10  C.  P.  562;  Grant  v. 
Norway,  10  C.  B.  665;  Coleman  v. 
Riches,  16  lb.  104;  Hubbersty  v. 
Ward,  8  Exch.  330;  McLean  v.  Flem- 
ing, L.  R.  2  H.  L.  128,  by  statute; 
Mackay  v.  Commercial  Bank,  L.  R.  5 
P.  C.  394;  Jessel  v.  Bath,  L.  R.  2  Ex. 
267;  Schooner  Freeman  v,  Bucking- 
ham, 18  How.  182;  The  May  Flower, 
3  Ware,  300;  The  Loon,  7  Blatchf. 
244;  Pollard  v.  Vinton,  105  U.  S.  7; 
S.  C.  13  Rep.  545;  Walter  v.  Brewer, 
1 1  Mass.  99 ;  Sears  r.  Wingate,  3  Allen 
(Mass.),  103;  Dean  v.  King,  22  Ohio 
St.  118;  Louisiana  Nat.  Bank  v.  La- 
veille,  52  Mo.  380;  Robinson  v.  Mem- 
phis &  Charleston  R.  R.  Co.  9  Fed. 
Rep.  129,  138. 

For  the  rule  in  Canada,  see  Erb  v. 
Great  Western  R'y  Co.  42  U.  C.  Q.  B. 
90;  ,S'.  C.  3  Tnpper's  App.  440  ;  Oliver 


V.  Great  Western  R'y  Co.  28  U.  C.  C. 
P.  143;  McLean  y.  Buffalo  &  Lake 
Huron  R'y  Co.  23  U.  C.  Q.  B.  448  ;  S. 
C.  24  lb.  271,  but  the  latter  case  seems 
to  be  overruled  by  that  first  cited. 

There  are  a  few  cases  which  seem 
to  be  opposed  to  the  general  rule  sup- 
ported by  the  weight  of  authority: 
Griswold  v.  Haven,  25  N.  Y.  595; 
Armour  v.  Michigan  Cent.  R.  R.  65  N. 
Y.  Ill ;  5.  C7.  22  Am.  R.  603 ;  Wichita 
Sav.  Bank  v.  Atchison,  Topeka  & 
Santa  Fe  R.  R.  Co.  20  Kans.  519. 

8  Baltimore  &  Ohio  R.  R.  Co.  v. 
Wilkins,  44  Md.  11;  Robinson  v. 
Memphis  &  Charleston  R.  R.  Co.  9 
Fed.  Rep.  129. 

*  Adoue  V.  Seeligson,  54  Tex.  593, 
604,  per  Moore,  C.  J.;  Stone  v.  Wa- 
bash, St.  Louis  &  Pacific  R'y  Co.  9 
Bradvv.  (111.)  48. 

6  Pollard  V.  Vinton,  105  U.  S.  7; 
S.  C.  13  Rep.  545. 

185 


§  247.]  PLEDGES   OF   BILLS    OF   LADING. 

defined  by  judicial  decisions.  It  is  an  instrument  of  a  twofold 
character.  It  is  at  once  a  receipt  and  a  contract.  In  tlie  former 
character  it  is  an  acknowledgment  of  the  receipt  of  property 
on  board  his  vessel  by  the  owner  of  the  vessel.  In  the  latter  it 
is  a  contract  to  carry  safely  and  deliver.  The  receipt  of  the 
goods  lies  at  the  foundation  of  the  contract  to  carry  and  deliver. 
If  no  goods  are  actually  received,  there  can  be  no  valid  contract 
to  carry  or  to  deliver." 

247.  This  matter  has  become  the  subject  of  statutory 
enactmients.  Thus  in  England  ^  it  is  provided  that  every  bill  of 
lading  in  the  hands  of  a  consignee  or  indorsee  for  valuable  con- 
sideration, representing  goods  to  have  been  shipped  on  board  a 
vessel,  shall  be  conclusive  evidence  of  such  shipment,  as  against 
the  master  or  other  person  signing  the  same,  notwithstanding  that 
such  goods,  or  some  part  thereof,  may  not  have  been  so  shipped, 
unless  such  holder  of  the  bill  of  lading  shall  have  had  actual 
notice  at  the  time  of  receiving  the  same,  that  the  goods  had  not 
been  in  fact  laden  on  board ;  provided  that  the  master  or  other 
person  so  signing  may  exonerate  himself  in  respect  of  such  mis- 
representation, by  showing  that  it  was  caused  without  any  default 
on  his  part,  and  wholly  by  the  fraud  of  the  shipper,  or  of  the 
holder,  or  some  person  under  whom  the  holder  claims. 

In  Maryland  ^  it  is  provided  by  statute  that  all  bills  of  lading 
shall  be  conclusive  evidence  in  the  hands  of  any  bond  fide  holder 
for  value  of  such  instrument,  who  shall  have  become  such  with- 
out actual  notice  to  the  contrary,  that  all  of  the  goods,  chattels, 
and  commodities  in  said  instrument  mentioned  or  described,  had 
been  actually  received  by,  and  were  actually  in  possession  and 
custody  of,  such  person  or  corporation  at  the  time  of  issuing  the 
said  instrument  according  to  the  tenor  thereof,  and  for  the  pur- 
poses and  to  the  effects  therein  stipulated  or  provided,  notwith- 
standing that  the  fact  may  be  otherwise,  and  that  such  agent  or 
officer  may  have  had  no  authority  to  issue  any  such  instrument 
on  belialf  of  his  said  principal,  excejjt  for  goods,  chattels,  or  com- 
modities actually  received,  and  in  possession  at  the  time  of  such 
issue.3 

1  18  &  19  Vict.  c.  Ill,  §  3.     For  a         There  is  a  similar  statute  in  Ontario, 

case   under   this   act,    see    Volieri   v.  R.  S.  c.  116,  §  5,  sub-section  3. 
Boyland,  L.  R.  1  C.  P.  382.  2  r.  Code,  1878,  p.  298,  §§  13,  14. 

186  ^  In  Missouri  (R.  S.  1879,  vol.  i. 


HOW   FAR   BINDING   UPON   THE   CARRIER,  [§  248. 

248.  Neither  the  master  of  a  vessel  nor  its  shipping 
agent  can  bind  it  or  its  owner  by  signing  a  bill  of  lading 
for  goods  not  received.  Such  a  bill  of  lading  is  not  only  void 
in  the  hands  of  the  person  to  whom  it  is  issued,  but  also  in  the 
hands  of  a  pledgee  in  good  faith  and  for  value. ^  The  question 
is  one  of  agency.  The  Supreme  Court  of  the  United  States 
upon  this  point  say :  ^  "  Even  if  the  master  had  been  appointed 
by  the  owner,  a  wilful  fraud  committed  by  him  on  a  third  person 
by  signing  false  bills  of  lading  would  not  be  within  his  agency. 
If  the  signer  of  a  bill  of  lading  was  not  the  master  of  the  vessel, 
no  one  would  suppose  the  vessel  bound ;  and  the  reason  is  be- 
cause the  bill  is  signed  by  one  not  in  privity  with  the  owners. 
But  the  same  reason  applies  to  a  signature  made  by  a  master  out 
of  the  course  of  his  employment.  The  taker  assumes  the  risk, 
not  only  of  the  genuineness  of  the  signature,  and  of  the  fact  that 
the  signer  was  master  of  the  vessel,  but  also  of  the  apparent 
authority  of  the  master  to  issue  the  bill  of  lading.  We  say  the 
apparent  authority  because  any  secret  instructions  by  the  owner, 
inconsistent  with  the  authority  with  which  the  master  appears  to 
be  clothed,  would  not  affect  third  persons.  But  the  master  of  a 
vessel  has  no  more  apparent  authority  to  sign  bills  of  lading  than 
he  has  to  sign  bills  of  sale  of  the  ship.  He  has  an  apparent 
authority  if  the  ship  be  a  general  one,  to  sign  bills  of  lading  for 
cargo  actually  shipped  ;  and  he  has  also  authority  to  sign  a  bill  of 
sale  of  the  ship  when  in  case  of  disaster  his  power  of  sale  arises. 

c.  11,  §  557,  560)  it  is  provided  by  veyed  as  expressed  in  such  bill  of 
statute  that  no  master,  owner,  or  lading,  receipt,  or  other  voucher  or 
agent  of  any  boat  or  vessel  of  any  document.  A  violation  of  this  pro- 
description,  forwarder,  or  officer,  or  vision  is  punishable  by  a  fine  in  any 
agent  of  any  railroad,  transfer,  or  sum  not  exceeding  five  thousand  dol- 
transportation  company,  or  other  per-  lars,  or  imprisonment  in  the  peni- 
son,  shall  sign  or  give  any  bill  of  tentiary  not  exceeding  five  years,  or 
lading,  receipt,  or  other  voucher  or  both.  The  person  aggrieved  by  such 
document,  for  any  merchandise  or  violation  may  also  recover  in  an  actioQ 
property,  by  which  it  shall  appear  that  at  law  of  the  person  guilty  thereof  all 
such  merchandise  or  property  has  been  damages  he  has  sustainiMl. 
shipped  on  board  of  any  boat,  vessel,  There  are  statutes  similar  to  this  in 
railroad  car,  or  other  vehicle,  unless  several  states,  this  being  given  only 
the    same    shall    have   been   actually  as  a  sample. 

shipped  and  put  on  board,  and  shall  i  Pollai'd  v.  Vinton,  105  U.  S.  7. 

be  at  the  time  actually  on  board  or  *  Schooner    Freeman    v.    13ucking- 

delivered  to  such  boat,  vessel,  car,  or  ham,  18  How.  182. 
other  vehicle,  to  be  carried  and  con- 

187 


§§  249,  250.]  PLEDGES   OF  BILLS   OF   LADING. 

But  the  authority  in  each  case  arises  out  of  and  depends  upon  a 
particular  state  of  facts.  It  is  not  an  unlimited  authority  in  one 
case  more  than  in  the  other  ;  and  his  act  in  either  case  does  not 
bind  the  owner  even  in  favor  of  an  innocent  purchaser,  if  the 
facts  on  which  his  power  depended  did  not  exist ;  and  it  is  incum- 
bent upon  those  who  are  about  to  change  their  condition  upon  the 
faith  of  his  authority,  to  ascertain  the  existence  of  all  the  facts 
upon  which  his  authority  depends." 

249.  There  is  no  distinction  in  this  respect  between  a  bill 
of  lading  given  by  a  carrier  on  land  and  one  given  by  a  car- 
rier on  water.  The  exemption  of  the  owner  of  a  ship  from  lia- 
bility for  the  fraud  of  the  master  in  issuing  a  false  bill  of  lading 
does  not  grow  out  of  the  peculiarities  of  the  laws  of  the  sea,  and  is 
not  founded  on  the  principle  that  the  ship  is  bound  to  the  freight 
and  the  freight  to  the  ship.^  The  exemption  of  the  carrier  from 
liability  in  such  case  is  founded  upon  the  common  law  principle, 
that  one  is  not  bound  by  the  acts  of  an  agent  when  acting  outside 
the  scope  of  his  authority.  So  far  as  the  agency  of  a  master  of  a 
ship  is  implied,  it  is  more  comprehensive  than  that  of  a  station  or 
freight  agent  of  a  railroad  company ;  ^  and  if  any  argument  is  to 
be  drawn  from  the  difference  of  the  agency  in  the  two  cases,  it  is 
that  inasmuch  as  the  master  has  no  authority,  actual  or  appar- 
ent, to  issue  bills  of  lading  until  the  goods  are  delivered  to  the 
ship,  much  less  has  the  freight  agent  of  a  railroad  company, 
whose  agency  is  less  comprehensive,  any  authority  to  bind  the 
railroad  company  by  issuing  bills  of  lading  for  goods  not  actually 
delivered  to  the  company.  It  is  not  essential,  however,  that  the 
agent  of  the  carrier,  or  the  master  of  the  vessel,  should  have 
actual  possession  of  the  goods,  if  he  has  potential  possession  of 
them,  before  executing  a  bill  of  lading.  Thus  he  may  issue  a 
valid  bill  of  lading  upon  receiving  a  warehouse  receipt  for  the 
goods  properly  issued,  as  this  places  the  goods  within  his  control. 

250.  Neither  a  general  nor  a  local  custom  to  use  bills  of 
lading  as  collateral  security  can  constitute  them  negotiable 
instruments  as  against  the  carrier,  and  make  him  liable  to  the 

1  Robinson  v.  Memphis  &  Charles-  ^  Robinson  v.  JNIemphis  &  Charles- 
ton R.  R.  Co.  9  Fed.  Rep.  129,  140,  ton  R.  R.  Co.  sw/)ra,  per  Hammond,  J. 
per  Hammond,  J. 

188 


HOW   FAR   BINDING   UPON   THE   CARRIER.  [§  250. 

indorsee  in  the  same  way  that  be  would  be  if  be  bad  drawn 
negotiable  bills  of  excbange. 

A  bill  of  lading  is  merely  a  receipt  by  tbe  carrier  for  the  mer- 
chandise received  for  transportation  and  evidence  of  a  contract 
with  the  shipper  to  carry  the  merchandise  to  its  destination. 
The  carrier's  liability  would  be  the  same  if  he  received  the  goods 
and  undertook  to  transport  them  without  issuing  a  bill  of  lading. 
The  carrier's  contract  is  with  the  shipper  and  with  no  one  else. 
If  the  shipper  indorses  his  contract  to  any  one  else,  the  indorsee 
acquires  only  the  rights  of  the  shipper,  and  it  is  not  for  the  in- 
terest of  commerce  that  he  should  acquire  any  other  rights.  The 
common  law  makes  it  no  part  of  the  duty  of  a  carrier  to  issue 
bills  of  lading  which  shall  have  the  effect  of  negotiable  securities 
as  against  him  ;  though  it  holds  him  rigidly  to  the  performance 
of  his  contract  as  a  carrier.  While  merchants  have  from  time 
immemorial  treated  bills  of  lading  as  convenient  symbols  or  in- 
struments of  title,  which  they  have  transferred  by  indorsement, 
and  have  thus  given  them  a  quasi  negotiability  or  capacity  to 
pass  from  hand  to  hand,  this  custom  of  merchants  is  one  wholly 
for  their  own  benefit,  and  is  one  which  does  not  benefit  the 
carrier  or  in  any  way  concern  him,  unless  it  be  to  make  him  liable 
to  the  indorsee,  instead  of  the  shipper,  for  the  delivery  of  the  goods. 

Upon  this  point  Judge  Hammond,  delivering  the  judgment  of 
the  Circuit  Court  of  the  United  States  in  the  case  of  a  fraudulent 
bill  of  lading  which  an  indorsee  had  taken  as  security  for  the 
discount  of  a  draft  drawn  against  it,  said :  ^  "It  seems  to  me 
with  all  deference,  that  it  is  a  misapprehension  of  the  true  char- 
acter of  this  instrument,  and  of  the  true  relation  of  the  parties 
to  it,  to  treat  it  as  if  the  maker  were  engaged  in  the  business  of 
issuing  negotiable  securities,  which  he  is  bound  to  protect  at  all 
hazards  in  the  hands  of  a  bond  fide  purchaser  for  value ;  or,  as  it 
is  expressed  in  argument  here,  to  protect  those  who  innocently 
and  in  good  faith  deal  with  it.  This  entails  a  liability  dehors 
the  contract.  It  makes  the  carrier  an  insurer  or  guarantor  of 
strangers  to  the  contract  against  loss  incurred  by  a  use  of  the 
instrument  in  wliich  the  carrier  has  no  interest,  and  binds  him 
to  a  liability  for  which  he  is  not  paid  ;  for  the  comparatively 
small  sum  he  receives  as  compensation  for  carriage  will  not,  and 
is  never  intended  to  cover  or  insure  him  against  loss  incurred  by 

^  Robinson  u.  Memphis  &  Charleston  R.  R.  Co.  9  Fed.  Rep.  129,  133. 

180 


§  251]  PLEDGES   OF   BILLS   OF   LADING. 

such  a  liability  as  that.  The  consideration  he  receives  is  not 
commensurate  with  the  liability  sought  to  be  imposed,  and  if  it 
is  determined  to  exist,  crrriers  must  necessarily  add  to  the  freight 
a  sum  sufficient  to  indemnify  them,  as  insurance  companies  are  ; 
and  this  for  the  protection  of  outside  parties  dealing  in  matters 
not  pertaining  to  the  carriage  of  the  goods.  Moreover  it  ob- 
structs the  carrier  in  his  proper  business,  and  entails  upon  him 
the  selection  of  agents  possessing  not  only  the  ordinary  mental 
and  moral  qualifications  essential  to  the  receiving,  handling,  and 
carriage  of  merchandise,  but  those  having  the  relatively  higher 
qualifications  required  of  bank  cashiers  or  other  agents  entrusted 
with  the  duty  of  issuing,  signing,  and  handling  bank  notes, 
negotiable  bonds,  or  like  securities.  It  does  not  seem  to  me  in 
the  interest  of  commerce  to  compel  carriers  either  to  so  increase 
the  rates  of  compensation  or  to  confine  them  to  the  selection  of 
agents  as  banks  and  trust  companies  are  confined." 

251.  The  carrier  is  not  estopped  to  deny  that  he  has  re- 
ceived the  goods  specified  in  the  bill  of  lading,  when  this  has 
been  issued  by  a  common  agent,  such  as  a  station  agent,  freight 
receiver,  or  conductor  of  a  railroad  company,  without  actually 
receiving  the  goods,  and  has  passed  into  the  hands  of  an  innocent 
indorsee  for  value.  Such  agent  in  issuing  a  fictitious  bill  of  lad- 
ing is  not  acting  within  the  scope  of  his  authority,  or  even  within 
the  apparent  scope  of  his  authority.  He  is  authorized  to  receive 
merchandise  for  transportation,  and  to  give  a  receipt  for  it  and  a 
contract  for  its  transportation.  "  It  was  not  within  the  apparent 
scope  of  this  authority  to  sign  and  issue  documents  for  the  mere 
purpose  of  having  them  attached  to  drafts  or  otherwise  pledged 
as  collateral  security  irrespective  of  the  actual  possession  of 
goods  to  be  carried.  It  may  well  be  doubted  whether  the  direc- 
tory itself,  or  the  body  of  stockholders  even,  could  authorize  the 
company  to  issue  bills  of  lading  without  the  merchandise  in  hand 
to  be  used  for  any  purpose.  The  charter  does  not  authorize  such 
a  business,  and  the  company  is  not  engaged  in  it.  Therefore  it 
seems  to  me  plain  that  the  agent's  authority,  actual  and  apparent, 
was  limited  to  issuing  bills  of  lading  on  goods  in  hand,  and  all 
else  was  outside  the  agency,  unless  we  are  to  treat  these  docu- 
ments as  against  the  carrier  just  as  if  they  were  as  negotiable  in 
190 


HOW   FAR   BINDING   UPON   THE   CARRIER.  [§  252. 

this  respect  as  bills  and  notes,  which  we  have  seen  we  are  not 
authorized  to  do."  ^ 

252.  In  New  York,  however,  an  exceptional  doctrine  pre- 
vails, that  the  carrier  is  estopped  to  claim  that  the  bill  of 
lading  does  not  cover  the  goods  described  in  it.  A  bond  fide 
indorsee  of  a  bill  of  lading,  who  has  advanced  his  money  upon  it, 
is  entitled  to  rely  upon  the  quantity  and  kind  of  goods  acknowl- 
edged therein,  and  he  may  compel  the  carrier  to  account  for  that 
quantity,  whether  it  was  actually  shipped  or  not.  The  carrier  is 
estopped  by  signing  the  bill  from  settling  up  his  own  want  of 
care  at  the  expense  of  the  indorsee  who  has  thus  been  induced 
to  give  credit  to  the  shipment.^  '■'  There  is  an  established  dis- 
tinction in  favor  of  a  bond  fide  indorsee,  grounded  upon  the  doc- 
trine of  estoppel.  By  signing  the  bill  of  lading,  acknowledging 
the  receipt  of  a  given  quantity  of  merchandise,  the  master  has 
enabled  his  shipper  to  go  into  the  market  and  obtain  money  on 
the  credit,  of  the  shipment,  and  cannot  be  permitted,  as  against  a 
person  so  advancing,  to  set  up  his  own  or  the  master's  want  of 
care  at  the  expense  of  the  indorsee.  This  results  from  the 
qualified  negotiability  of  these  instruments."^  A  railroad  com- 
pany which  has  issued  a  bill  of  lading  for  a  certain  number  of 
barrels  of  eggs,  when  in  fact  the  barrels  contain  nothing  but 
sawdust,  is  liable  to  an  indorsee  of  the  bill  of  lading  who  has 
adv-anced  money  thereon,  for  the  injury  sustained  through  the 
falsity  of  the  bill  of  lading.  The  carrier  can  always  protect 
himself  either  by  inspecting  the  packages  received  so  as  to  know 
what  they  contain,  or  else  by  issuing  bills  of  lading  in  such  form 
that  an  indorsee  would  not  be  misled  in  regard  to  the  quantity 
or  kind  of  goods  thereby  covered.  If  he  chooses  to  issue  receipts 
for  barrels  or  packages  containing .  specified  articles,  it  is  not 
enough  to  deliver  to  a  bond  fide  indorsee  who  has  advanced 
money  on  the  faith  of  the  bill  of  lading,  packages  containing 
articles  altogether  different  and  of  no  value.^ 

But  the  better  doctrine  is  that  the  carrier  is  not  estopped  by 

^  Robinson  v.  Memphis  &  Charles-  »  Meyer  v.  Peck,  28  N.  Y.  590. 

ton  R.  R.  Co.  9  Fed.  Rep.   129,   137,  <  Meyer  v.  Peck,  28  N.  Y.  590,  598, 

per  Hammond,  .J.  per  Denio,  C.  J. 

2  Armour  v.  Michigan  Cent.  R.  R.  ''  Miller  v.  Hannibal  &  St.  Ju.  R.  R. 

65N.  Y.  111.  191 


§§  253,  254.]  PLEDGES   OF   BILLS   OF   LADING. 

any  error  or  misstatement  in  the  bill  of  lading  unless  this  was 
within  his  knowledge  or  should  have  been  within  his  knowledge.^ 

253.  A  bill  of  lading  may  be  operative  between  the  pledgor 
and  pledgee,  though  not  binding  upon  the  carrier.  Thus,  if 
a  bill  of  lading  is  not  binding  upon  the  carrier  because  the  goods 
are  not  in  fact  delivered  to  the  carrier,  it  does  not  follow  that 
the  bill  of  lading  may  not  operate  as  a  valid  transfer  as  between 
the  person  to  whom  it  is  issued  and  his  pledgor,  if  the  goods  are 
at  the  time  in  the  hands  of  a  third  person.  Moreover  a  bill  of 
lading  may  be  operative  between  the  owner  of  the  goods  and  his 
pledgee  before  the  goods  are  actually  received  by  the  carrier. 
Thus,  where  a  master  of  a  vessel  issued  a  bill  of  lading  of  cotton 
upon  receiving  an  order  therefor  upon  a  cotton  press  which  was 
duly  accepted,  and  the  shipper  obtained  advances  upon  a  draft 
with  the  bill  of  lading  annexed,  it  was  held  that  the  bill  of  lad- 
ing was  effectual  to  pass  the  property  to  the  pledgee,  as  against 
a  creditor  of  the  pledgor  who  levied  an  execution  upon  cotton 
after  such  pledge,  but  before  the  cotton  was  delivered  from  the 
press  to  the  vessel.^ 

254.  Possession  of  goods  obtained  under  a  spurious  bill 
of  lading  will  not  avail  against  a  pledgee  of  the  true  bill  of 
lading.  The  general  owner  of  goods  having  obtained  advances 
upon  the  security  of  bills  of  lading  representing  the  goods,  has 
no  right  to  the  possession,  disposal,  or  control  of  the  goods,  and 
any  possession  obtained,  or  dominion  exercised  by  him,  without 
the  pledgee's  assent,  is  tortious  and  confers  no  title.  Thus  gen- 
uine bills  of  lading  having  been  obtained  at  Chicago,  of  wheat 
shipped  on  board  a  propeller  for  Buffalo,  and  drafts  having  been 
discounted  on  the  security  of  such   bills  of  lading,  the  general 

Co.  24  HuQ  (N.  Y.),  607  ;  5.  C.  12  N.  shipped,  added  that  "  in  saying  this 
Y.  Weekly  Dig.  272.  we  do  not  mean  that  the  goods  must 
^  See  this  subject  in  Chapter  vii.  have  been  actually  placed  on  the  deck 
2  Adoue  V.  Seeligson,  54  Tex.  593.  of   the  vessel.     If   they  come  within 
In  Pollard  v.  Vinton  (U.  S.  Supreme  the  control  and  custody  of  the  olKcers 
Ct.  1882),  13  Rep.  545,  Miller,  J.,  after  of  the  boat  for  the  purpose  of   ship- 
stating  the  general  rule  that  a  bill  of  ment,    the   contract   of   carriage    has 
lading  is  not  a  contract  upon  the  car-  commenced,   and  the  evidence  of   it 
rier    unless    the   goods    are    actually  in  the  form  of  a  bill  of  lading  is  bind- 
ing." 

192 


WHETHER   SECURITY   FOR   ACCEPTANCE   OR   PAYMENT.      [§  255. 

owner  afterwards  obtained  false  bills  of  lading  of  the  wheat  as 
shipped  upon  certain  canal  boats  at  Buffalo,  before  the  wheat 
had  arrived  there,  although  the  wheat  was  afterwards  shipped 
upon  the  canal  boats  named  in  the  false  bills  of  lading.  Against 
the  latter  bills  of  lading  the  owner  also  drew  drafts  which  were 
paid  by  the  consignees,  relying  upon  the  security  of  these  bills. 
They  afterwards  obtained  possession  of  the  wheat.  In  an  action 
against  them  by  the  holder  of  the  first  bill  of  lading  and  a  draft 
drawn  against  it,  it  was  held  that  the  plaintiff  was  entitled  to 
recover  ;  that  not  having  clothed  the  general  owner  with  any 
authority  to  dispose  of  the  wheat  or  to  obtain  new  bills  of  lading, 
the  latter  represented  no  value,  and  the  plaintiff  was  not  estopped 
from  reclaiming  the  proper ty.^ 

IV.    Whether  Security  for  Acceptance  or  Payment. 

255.  The  assignment  of  a  bill  of  lading  drawn  to  tlie 
shipper's  own  order  as  security  for  the  discount  of  a  draft  drawn 
against  it  may  be  regarded  as  conclusive  of  the  shipper's  inten- 
tion that  the  property  shall  not  pass  to  the  drawer  except  upon 
his  payment  or  acceptance  of  the  draft.^  A  bill  of  lading  so 
drawn  shows  an  intent  on  the  part  of  the  shipper  to  reserve  to 
himself  the  dominion  over  the  goods  shipped ;  and  when  he  as- 
signs such  bill  to  another  as  security,  his  intention  is  conclusively 
shown  that  such  assignee  shall  have  a  special  property  in  the  goods 
and  the  full  control  of  them  until  the  draft  is  accepted  or  paid ; 
and  it  is  immaterial  whether  such  assignee  holds  the  bill  of  lading 
as  security  for  the  payment  or  acceptance  of  the  draft.^  The  in- 
tention that  such  assignment  shall  confer  a  special  property  in 
the  goods  arises  even  when  the  goods  have  been  shipped  in  a 
vessel  belonging  to  the  person  upon  whom  the  draft  is  drawn.*  It 
is  likewise  so  even  if  the  goods  be  delivered  to  the  drawer  as 

^  Marine  Bank  of  Buffalo  v.  Fiske,  Peoi)le's  Nat.  Bank  v.  Stewart,  3  Pucs. 

71  N.  Y.  353.  &  Bur.  (N.  B.)  268. 

^  Dows  V.  Nat.  Exch.  Bank,  91  U.  ^  Hathaway  v.  Haynes,  124  Mass. 

S.  618;  Jenkyns  v.  Brown,  14  Q.  B.  311,  313  ;  Security  Bank  v.  Luttgen, 

496  ;  Mitchell  i;.  Ede,  11  Ad.  &  E.  N.  supra. 

S.  888 ;    Alderman   v.  Eastern  11.  R.  *  Turner    v.    Liverpool    Docks,    6 

Co.  115  Mass.  233;  Security  Bank  v.  Exch.  543;   Schotsinans  v.  Ry.  Co.  L. 

Luttgen,  29  Minn.  363  ;  S.  C.  13  N.  R.  2  Ch.  App.  336;  EUershaw  v.  Mag- 

W.  Rep.  151  ;  Mason  v.  Great  West-  niac,  6  Exch.  570. 
ern    Ry.    Co.  31    U.    C.  Q.  B.   73  ; 

13  193 


§  256.]  PLEDGES   OF   BILLS   OF   LADING. 

a  mere  warehouseman,  and  not  as  a  purchaser ;  and  a  subse- 
quent sale  by  him  to  another  would  confer  no  title  against  the 
holder  of  the  draft  or  the  shipper. 

256.  A  bill  of  lading  is  regarded  as  security  for  the  ac- 
ceptance of  a  time  draft  drawn  against  it  rather  than  as  security 
for  the  payment  of  such  draft,  in  the  absence  of  any  express 
stipulation  about  it.  It  was  urged  in  behalf  of  a  bank  which 
discounted  certain  drafts  that  the  bills  of  lading  were  taken  as 
security  for  the  principal  obligation,  namely,  the  payment  of  the 
draft.  But  the  court  replied  that  this  is  an  assumption  of  the 
very  thing  to  be  proved  ;  to  wit,  that  the  transfer  of  the  bills  of  lad- 
ing was  made  to  secure  the  payment  of  the  drafts.^  "  The  opposite 
of  this  as  we  have  seen  is  to  be  inferred  from  the  bills  of  lading 
and  the  time  drafts  drawn  against  the  consignments  unexplained 
by  express  stipulations.  The  bank,  when  discounting  the  drafts, 
was  bound  to  know  that  the  drawees  on  their  acceptance  were 
entitled  to  the  cotton,  and  of  course  to  the  evidences  of  title  to  it. 
If  so  they  knew  that  the  bills  of  lading  could  not  be  a  security 
for  the  ultimate  payment  of  the  drafts.  Payment  of  the  drafts 
by  the  drawees  was  no  part  of  the  contract  when  the  discounts 
were  made.  The  bills  of  exchange  were  then  incomplete.  They 
needed  acceptance.  They  were  discounted  in  the  expectation 
that  they  would  be  accepted  and  that  thus  the  bank  would  obtain 
additional  promisors.  The  whole  purpose  of  the  transfers  of  the 
bills  of  lading  to  the  bank  may  therefore  well  have  been  satisfied 
when  the  additional  names  were  secured  by  acceptance,  and  when 
the  drafts  thereby  became  completed  bills  of  exchange.  We 
have  already  seen  that  whether  the  drafts  and  accompanying  bills 
of  lading  evidenced  sales  on  credit  on  requests  for  advancements 
on  the  cotton  consigned,  or  bailments  to  be  sold  on  the  consign- 
or's account,  the  drawees  were  entitled  to  the  possession  of  the 
cotton  before  they  could  be  required  to  accept ;  and  that  if  they 
had  declined  to  accept  because  possession  was  denied  to  them 
concurrently  with  their  acceptance,  the  effect  would  have  been  to 
discharge  the  drawers  and  indorsers  of  the  drafts.  The  demand 
of  acceptance,  coupled  with  a  claim  to  retain  the  bills  of  lading, 
would  have  been  an  insufficient  demand.  Surely  the  purpose  of 
putting  the  bills  of  lading  into  the  hands  of  the  bank  was  to 

1  Dows  V.  Nat.  Exch.  Bank,  91  U.  S.  618. 
19^ 


WHETHER   SECURITY   FOR   ACCEPTANCE   OR   PAYMENT.      [§  257. 

secure  tlie  completion  of  the  drafts  by  obtaining  additional  names 
upon  them,  and  not  to  discharge  the  drawers  and  indorsers,  leav- 
ing the  bank  only  a  resort  to  the  cotton  pledged." 

257.  A  bank  or  other  agent,  towhoni  a  bill  of  lading  with 
a  time  draft  has  been  forwarded  for  collection  may  surrender 
it  to  the  consignee  upon  his  acceptance  of  the  draft,  if  the 
drawer  has  not  expressly  directed  that  the  bill  of  lading  shall  not 
be  surrendered  till  the  draft  is  paid.^  It  is  immaterial  also 
whether  the  draft  be  indorsed  "  for  collection  "  or  not ;  for  these 
words  simply  rebut  the  inference  that  the  indorsee  is  the  owner 
of  the  draft.  The  agent  receiving  a  time  draft  accompanied  by 
a  bill  of  lading,  by  the  terms  of  which  the  property  is  deliverable 
to  the  consignee,  is  entitled  to  infer  either  that  the  merchandise 
specified  has  been  sold  on  credit,  in  accordance  with  the  terms  of 
the  draft,  or  that  the  draft  is  a  request  for  an  advance  upon  a 
consignment  of  goods  to  be  sold  on  account  of  the  shipper.  If 
the  transaction  be  the  former,  then  the  consignee  being  a  pur- 
chaser, is  entitled  in  the  absence  of  any  express  arrangement  to  the 
contrary,  to  the  possession  of  the  goods  on  his  accepting  the  bill.^ 


^  National  Bank  of  Commerce  v. 
Merchants'  Nat.  Bank,  91  U.  S.  92  ; 
Lanfear  v.  Blossman,  1  La.  Ann.  148  ; 
S.  C.  14  Hunt's  Merchants'  Mag.  264; 
Mears  v.  Waples,  4  Houst.  (Del.)  62; 
affirming  .S'.  C.  3  lb.  581 ;  Wisconsin  M. 
&  F.  Ins.  Co.  V.  Bank  of  British  N. 
A.  21  U.  C.  Q.  B.  284;  affirmed  2  U. 
C,  Error  &  Appeal,  282  ;  Goodenough 
V.  City  Bank,  10  U.  C.  C.  P.  51 ;  Clark 
V.  Bank  of  Montreal,  13  Grant's 
(Canada)  Ch.  211  ;  Wisconsin  Marine 
&  F.  Ins.  Co.  V.  Bank  of  British  N.  A. 
21  U.  C.  Q.  B.  284. 

2  National  Bank  of  Commerce  v. 
Merchants'  National  Bank,  91  U.  S. 
92,  per  Strong,  J.  "This  would  not 
be  doubted  if,  instead  of  an  acceptance, 
he  had  given  a  promissory  note  for 
the  goods,  payable  at  the  expiration 
of  the  stipulated  credit.  In  such  case 
it  is  clear  that  the  vendor  could  not 
retain  possession  of  the  subject  of  the 
sale,  after  receiving  the  note  for  the 


price.  The  idea  of  a  sale  on  credit  is 
that  the  vendee  is  to  have  the  thing 
sold  on  his  assumption  to  pay  and*  be- 
fore actual  payment.  The  considera- 
tion of  the  sale  is  the  note.  But  an 
acceptor  of  a  bill  of  exchange  stands 
in  the  same  position  as  the  maker  of  a 
promissory  note.  If  he  has  purchased 
on  credit  and  is  denied  possession  until 
he  shall  make  payment,  the  transac- 
tion ceases  to  be  what  it  was  intended, 
and  is  converted  into  a  cash  sale. 
Everybody  understands  that  a  sale  on 
credit  entitles  the  purchaser  to  im- 
mediate possession  of  the  property  sold 
unless  there  be  a  special  agreement 
that  it  may  be  retained  by  the  vendor; 
and  such  is  the  well-recognized  doc- 
trine of  the  law.  The  reason  for  this 
is  that  very  often,  and  with  merchants 
generally,  the  thing  purchased  is  need- 
ed to  provide  means  lor  the  deferred 
payment  of  the  price.  Hence  it  is 
justly  inferred   that   the    thing  is  in- 

196 


§  257.] 


PLEDGES  OF  BILLS  OF   LADING. 


If  on  the  other  hand  the  inference  to  be  drawn  is  that  advances 
are  requested  upon  a  consignment  of  the  goods,  the  consequence 
is  the  same.  In  such  case  it  is  plain  that  the  acceptance  is  asked 
for  on  the  faith  of  the  consignment,  and  not  on  the  credit  of 
the  drawer.  To  refuse  the  consignee  the  bill  of  lading  would  be 
to  withhold  from  him  the  very  security  upon  which  he  is  asked 
to  accept  the  draft.  An  agent  for  collection  cannot  be  permitted, 
by  declining  to  surrender  the  bill  of  lading  on  the  acceptance  of 
the  draft,  to  disappoint  the  obvious  intentions  of  the  parties, 
and  deny  to  the  acceptor  a  substantial  right  which  is  assured  to 
him  by  his  contract. 

This  in  brief  is  the  reasoning  of  the  Supreme  Court  of  the 
United  States  in  the  leading  case  upon  this  subject.  This  reason- 
ing is  supported  by  other  rational  considerations.  "  In  the  ab- 
sence of  special  agreement  what  is  the  consideration  for  accept- 


tended  to  pass  at  once  within  the  con- 
trol of  the  purchaser.  It  is  admitted 
that  a  difi'erent  arrangement  may  be 
stipulated  for.  Even  in  a  credit  sale, 
it  may  be  agreed  by  the  parties  that 
the  vendor  shall  retain  the  subject  un- 
til the  expiration  of  the  credit,  as  a  se- 
curity for  the  payment  of  the  sum 
stipulated,  but  if  so,  the  agreement  is 
special,  something  superadded  to  an  or- 
dinai'y  contract  of  sale  on  credit,  the  ex- 
istence of  which  is  not  to  be  presumed. 
Therefore  in  a  case  where  the  drawing 
of  a  time  draft  against  a  consignment 
raises  the  implication  that  the  goods 
consigned  have  been  sold  on  credit, 
the  agent  to  whom  the  draft  to  be  ac- 
cepted and  the  bill  of  lading  to  be 
delivered  have  been  intrusted  cannot 
reasonably  be  required  to  know,  with- 
out instruction,  that  the  transaction  is 
not  what  it  purports  to  be.  He  has 
no  right  to  assume  and  act  on  the 
assumption  that  the  vendee's  term  of 
credit  must  expire  before  he  can  have 
the  goods,  and  that  he  is  bound  to 
accept  the  draft,  thus  making  himself 
absolutely  responsible  for  the  sum 
named  therein,  and  relying  upon  the 
ment 

196 


future  time.  This  would  be  treating 
a  sale  on  credit  as  a  mere  execu- 
tory contract  to  sell  at  a  subsequent 
date."  That  the  drawee  in  such  a 
case  is  not  bound  to  accept  the  draft 
except  upon  surrender  to  him  of  the 
bill  of  lading,  see  also  dicta  in  Shep- 
herd V.  Harrison,  L.  R.  4  Q.  B.  493, 
per  Lord  Cockburn  ;  S.  C.  L.  R.  5  H.  L. 
116,  133,  per  Lord  Cairns;  Coventry 
V.  Gladstone,  L.  R.  4  Eq.  493;  Gurney 
V.  Behrend,  3  El.  &  Bl.  622  ;  Schu- 
chardt  v.  Hall,  36  Md.  590;  Marine 
Bank  v.  Wright,  48  N.  Y.  1 ;  Cayuga 
Bank  v.  Daniels,  47  N.  Y.  631 ;  Se- 
curity Bank  v.  Luttgen,  29  Minn. 
363;  S.  C.  13  N.  W.  Rep.  151.  In 
National  Bank  of  Commerce  v.  Mer- 
chants' National  Bank,  supra,  after  a 
review  of  the  authorities,  Mr.  Justice 
Strong  said:  "  We  feel  justified  in  say- 
ing, that  in  our  opinion,  no  respectable 
case  can  be  found  in  which  it  lias  been 
decided  that  Avhen  a  time  draft  has 
been  drawn  against  a  consignment  to 
order,  and  has  been  forwarded  to  an 
agent  for  collection  with  the  bill  of 
lading  attached,  without  any  further 
instructions,  the  agent  is  not  justified 
in  delivering  over  the  bill  of  lading  on 
the  acceptance  of  the  draft." 


WHETHER   SECURITY  FOR   ACCEPTANCE   OR   PAYMENT.      [§  258. 

ance  of  a  time  di-aft  drawn  against  merchandise  consigned?  Is 
it  the  merchandise?  or  is  it  the  promise  of  the  consignor  to 
deliver  ?  If  the  latter  the  consignor  may  be  wholly  irresponsible. 
If  the  bill  of  lading  be  to  his  order,  he  may,  after  acceptance  of 
the  draft,  indorse  it  to  a  stranger,  and  thus  wholly  withdraw  the 
goods  from  any  possibility  of  their  ever  coming  to  the  hands  of 
the  acceptor.  Is  then  the  acceptance  a  mere  purchase  of  the 
promise  of  the  drawer?  If  so,  why  are  the  goods  forwarded 
before  the  time  designated  for  payment  ?  They  are  as  much, 
after  shipment,  under  the  control  of  the  drawer  as  they  were 
before.  Why  incur  the  expense  of  storage  and  of  insurance? 
And  if  the  draft  with  the  goods  or  with  the  bill  of  lading  be  sent 
to  a  bank  for  collection,  as  in  the  case  before  us,  can  it  be  incum- 
bent upon  the  bank  to  take  and  maintain  custody  of  the  prop- 
erty sent  during  the  interval  between  the  acceptance  and  the 
time  fixed  for  payment?  Meanwhile,  though  it  be  a  twelve- 
month, and  no  matter  what  the  fluctuations  in  the  market  value 
of  the  goods  may  be,  are  the  goods  to  be  withheld  from  sale  or 
use  ?  Is  the  drawee  to  run  the  risk  of  falling  prices,  with  no 
ability  to  sell  till  the  draft  is  due  ?  If  the  consignment  be  of 
perishable  articles  —  such  as  peaches,  fish,  butter,  eggs,  &c., — 
are  they  to  remain  in  a  warehouse  until  the  term  of  credit  shall 
expire  ?  And  who  is  to  pay  the  warehouse  charges  ?  Certainly 
not  the  drawees.  If  they  are  to  be  paid  by  the  vendor,  or  one 
who  has  succeeded  to  the  place  of  the  vendor  by  the  indorsement 
of  the  draft  and  bill  of  lading,  he  fails  to  obtain  the  price  for 
which  the  goods  were  sold."  ^ 

258.  But  of  course  it  may  be  expressly  agreed  that  the 
bill  of  lading  shall  secure  the  payment  of  a  time  draft  rather 
than  the  acceptance  of  it.  If  the  holder  of  a  bill  of  lading  as 
security  for  a  time  draft  drawn  against  it  be  expressly  authorized 
to  hold  it  until  the  draft  be  paid,  he  is,  of  course,  under  no  legal 
obligation  to  surrender  the  security  upon  the  acceptance  of  the 
draft,  and  to  trust  to  the  personal  liability  of  the  acceptors  for 
payment ;  and  the  drawer  in  such  case  is  not  entitled  to  require 
a  formal  presentment  of  the  bill  of  exchange  for  acceptance,  and 
notice  of  its  non-acceptance.^ 

*  National   Bank   of   Commerce    v.     PeopUi's  Nat.  Bank  v.  Stewart,  3  Pugs- 
Mercliants'  Nat.  Bank,  91  U.  S.  '.)2,  9  7.     ley  &  Bur.  (N.  J?.)  208. 
2  ScLuchardt  v.  Hall,   30  jNM.  .090  ;  197 


§  259.]  PLEDGES  OF  BILLS   OF   LADING. 

A  custom  of  trade  not  to  deliver  the  bill  of  lading  till  pay- 
ment of  the  acceptance,  is  exceptional.^  But  an  ap;ent  receiving 
a  time  draft  and  a  bill  of  lading  attached  with  instructions  to 
hold  the  goods  until  payment,  has  no  power  prior  to  such  pay- 
ment, to  make  a  delivery  of  the  goods  to  the  consignee  which 
will  divest  the  ownership  of  his  principal.^  Thus  if  one  who  had 
discounted  a  draft  drawn  against  a  bill  of  lading  of  wheat,  for- 
ward the  draft  with  the  bill  of  lading  attached,  to  an  agent,  with 
instructions  by  special  indorsement  and  by  letter,  to  hold  the 
wheat  until  payment  of  the  draft,  the  agent  has  no  power  prior 
to  such  payment,  to  make  a  delivery  which  will  divest  the  owner- 
ship of  his  principal.^ 

259.  Parol  evidence  is  admissible  of  an  agreement  made 
between  a  shipper  and  a  pledgee  of  a  time  draft  with  a  bill 
of  lading  attached,  that  the  bill  of  lading  should  not  be  delivered 
until  the  draft  should  be  paid.  The  indorsement  and  delivery  of 
the  bill  of  lading  do  not  constitute  a  written  contract  having  a 
fixed  definite  meaning  in  the  law  presumably  complete  in  itself, 
and  of  a  nature  to  exclude  from  consideration  all  express  parol 
agreements  as  to  the  conditions  annexed  to  the  transfer.  The 
indorsement  and  delivery  of  a  bill  of  lading  have  no  such  fixed 
legal  effect  as  flows  from  the  indorsement  and  delivery  of  nego- 
tiable paper,  but  operate  only  as  a  delivery  of  the  merchandise  re- 
presented in  the  bill  of  lading.*  If,  therefore,  a  merchant  ships 
goods  and  takes  a  bill  of  lading  to  his  own  order,  and  drawing 
a  bill  of  exchange  payable  thirty  days  after  sight,  attaches  it  to 
the  bill  of  lading  and  obtains  a  discount  of  it  at  a  bank,  the 
transaction  legally  interpreted  does  not  import  a  sale  of  the 
goods  upon  credit,  or  determine  that  the  drawer  is  entitled  to 
the  bill  of  lading  upon  his  acceptance  of  the  draft  without  pay- 
ment ;  and  if  the  bank  surrenders  the  bill  of  lading  to  the  con- 
signee upon  his  acceptance  of  the  draft,  and  the  latter  becomes 
insolvent  without  paying  the  draft,  the  bank  must  bear  the  loss^ 
and  cannot  recover  of  the  drawer  the  amount  of  the  draft.^ 

1  Gurneyr.  Bebrend,3El.  &B1.622,  &  Bl.  622,  632;  Pease  v.  Gloahec,  L. 
629;  Coventry  v.  Gladstone,  L.  R.  4     R.  1  P.  C.  219,  228. 

Eq.  493;  ^.  C.  6  lb.  44.  »  Dows  v.  Nat.  Exch.  Bank,  supra. 

2  Dows  V.  Nat.  Exch.  Bank,  91  U.  *  Security  Bank  v.  Luttgen,  29 
S.  618  ;  StoUenwerck  v.  Tbacher,  115  Minn.  363;  S.  C.  13  N.  W.  Rep.  151. 
Mass.  224  ;  Gurney  v.  Behrend,  3  El.  ^  Security  Bank  v.  Luttgen,  supra. 

198 


HOW   BILLS   OF   LADING   MAY   BE   PLEDGED.       [§§  260,  261. 

260.  The  title  of  one  who  holds  a  bill  of  lading  for  a  draft 
upon  the  consignee  is  subject  to  the  condition  that  it  shall 
be  divested  upon  the  consignee's  acceptance  or  payment  of  the 
draft,  when  the  title  to  the  property  vests  in  the  latter.  Thus,  if 
the  draft  be  a  time  draft,  so  that  the  consignee  is  entitled  to  the 
goods  upon  acceptance  of  the  draft,  the  title  passes  to  him  upon 
his  acceptance,  and  the  security  of  the  holder  of  the  draft  is 
transferred  to  the  personal  liability  of  the  consignee  as  acceptor ; 
but  if  he  refuses  to  accept,  the  title  continues  unimpaired  in  the 
holder  of  the  draft.^  On  the  other  hand,  if  the  holder  of  the 
draft  is  entitled  to  retain  the  bill  of  lading  until  the  draft  is 
paid,  his  right  of  property  and  of  possession  passes  to  the  con- 
signee only  upon  the  condition  of  his  paying  the  bill  of  exchange.^ 
"  It  thus  appears  to  be  established  as  a  correct  rule  that  a  person 
purchasing  a  draft  drawn  by  the  shipper  of  the  goods  with  a  bill 
of  lading  accompanying  it,  has  a  special  property  in  the  goods 
covered  by  the  bill  of  lading.  Usually  in  the  case  of  a  time  draft 
this  special  property  vests  in  the  purchaser  of  the  draft  as  secu- 
rity for  its  acceptance.  It  may  be,  if  so  agreed  between  the 
shipper  and  the  purchaser  of  the  draft,  that  the  purchaser  will 
have  a  right  to  retain  the  bill  of  lading,  and  thus  retain  his 
special  property  in  the  goods  shipped,  not  only  for  the  acceptance 
but  for  the  payment  of  the  draft.^ 

V.  Hoio  Bills  of  Lading  may  he  Pledged. 

261.  A  bill  of  lading  drawn  to  the  order  of  the  con- 
signor is  properly  assigned  by  his  indorsement.  His  pledge 
of  it  in  this  way  passes  to  the  assignee  the  title  to  the  goods  it 
represents.*  But  a  mere  indorsement  of  it,  without  a  delivery, 
does  not  transfer  the  property  in  the  goods.^ 

The  consignor  having  indorsed  and  delivered  the  bill  of  lading, 

1  Marine  Bank  v.  Wright,  48  N.  ^  Dodge  v.  Meyer,  10  Pac.  Coast 
Y.  1;  Cayuga    Bank    v.   Daniels,  47     L.  J.  169,  per  Thornton,  J. 

N.    Y.    631;     First     Nat.    Bank     v.  *  Tilden  y.  Minor,  45  Vt.  196  ;  Hies- 

Crocker,    111     Mass.   163;    Allen    v.  kell  v.   Farmers'   &  Mechanics'  Nat. 

Williams,  12  Pick.  (Mass.)  297;  Petitt  Bank,    89  Pa.  St.  155;   Robinson    v. 

V.  First  Nat.    Bank,   4  Bush   (Ky.),  Stuart,  68  Me.  61  ;  Winslow  v.  Nor- 

334.  ton,  29  Me.  419. 

2  Jenkyns  v.  Brown,  14  Q.  B.  496;  ^  Muffin gton  v.  Curtis,  15  Mass. 
Hieskell    v.    Farmers'    &   Mechanics'  528. 

Nat.  Bank,  89  Pa.  St.  155. 

199 


§  262.]  PLEDGES   OF   BILLS   OF   LADING. 

the  carrier  is  bound  to  deliver  the  goods  to  the  person  holding 
this  evidence  of  title,  and  cannot  deliver  them  to  any  other  per- 
son without  violating  his  contract  and  making  himself  respon- 
sible for  the  loss  that  the  holder  of  the  bill  of  lading  may  thereby 
suffer.^ 

A  bill  of  lading  with  the  name  of  a  particular  consignee,  or 
bearer,  may  be  transferred  by  delivery  merely,^  unless  there  be  a 
statute  imperatively  requiring  indorsement. 

Such  an  indorsement  and  delivery  transfers  a  special  property 
in  the  goods  to  the  holder  of  the  draft  drawn  against  them,  both 
as  against  the  consignor,  and  as  against  any  creditor  of  his.'^ 

262.  A  bill  of  lading  drawn  to  the  shipper's  order  may  be 
transferred  by  delivery  merely  without  any  indorsement  so 
as  to  transfer  the  property  represented  thereby.^  "  It  is  well 
settled  that  property  or  goods  shipped  by  a  bill  of  lading  drawn 
to  oriler,  may  be  transferred  by  delivery  to  a  third  person  with- 
out any  indorsement.  Bills  of  lading  are  choses  in  action,  and 
no  rule  is  better  established  than  that  instruments  of  this  char- 
acter may  be  transferred  for  a  valuable  consideration  by  delivery 
only.  Although  the  plaintiff  was  not  a  party  to  the  bill  of  lad- 
ing, it  cannot  affect  his  right  to  the  contract  contained  in  the 
same,  if  he  acquired  it  lawfully.  ^  Such  a  transfer  does  not,  like 
the  delivery  of  an  unindorsed  note,  transfer  a  merely  equitable 
title  ;  but  it  gives  as  valid  and  effectual  a  title  to  the  goods  rep- 
resented by  the  bill  of  lading,  as  could  be  obtained  by  an  actual 
delivery  of  the  goods  themselves,  if  there  was  an  intent  to  pass 
the  title  by  such  delivery .^     Such  intent  may  be  shown  by  the 

1  Forbes  v.  Boston  &  Lowell  R.  R.  ^  Merchants'  Bank  v.  Union  R.  R. 
Co.  133  Mass.  154.  &  Trans.  Co.  69  N.Y.  373,  per  Miller, 

2  Allen  r.  Williams,  12  Pick.  (Mass.)  J.:  and  see  Gibson  v.  Stevens,  8  How. 
297.  384,  400. 

8  Hathaway  v.  Haynes,  124  Mass.  ^  Becker  v.   Hallgarten,  86  N.  Y. 

811;  Forbes  r.  Boston  &  Lowell  R.  R.  167,  175;  Glidden  v.  Lucas,  7  Cal.  26; 

Co.  133  Mass.  154.  Allen  v.  Williams,  12  Pick.  Mass.  297, 

*  Bank  of  Rochester  y.  Jones,  4  N.  301,    per    Shaw,    C,   J.;    Holmes  v. 

Y.  497  ;  Merchants'  Bank  v.  Union  R.  Bailey,  92  Pa.  St.  57;  Holmes  v.  Ger- 

R.  &  Transportation  Co.  69  N.  Y.  373;  man  Security  Bank,  87  Pa.  St.  525  ; 

Marine    Bank    v.  Wright,   46    Barb.  City  Bank  v.  Rome,  W.  &  O.  R.  R.  Co. 

(N.  Y.)  45;  Michigan  Central  R.  R.  44N.  Y.  136;  St.  Louis  National  Bank 

Co.   V.    Phillips,    60    111.    190;     Dav-  t;.  Ross,  9  Mo.  App.  399  ;  Petitt  i;.  First 

enport    Bank    v.    Homeyer,    45    Mo.  Nat.  Bank,  4  Bush  (Ky.),  334;  Dodge 

145.  V.  Meyer  (Cal.  1882),  10  Pac.  Coast 
200 


HOW  BILLS   OF  LADING  MAY   BE   PLEDGED.  [§  263. 

circumstances  attending  the  transaction.^  The  fact  that  the  bill 
of  lading  is  delivered  by  the  shipper  as  security  to  one  who  dis- 
counts a  draft  drawn  against  it,  is  well  nigh  conclusive  of  the 
shipper's  intention  to  transfer  the  property  in  the  goods.^ 

In  a  case  where  a  bank  discounted  a  draft  on  the  security  of  a  bill 
of  lading,  which  was  delivered  to  it  without  indorsement,  and  the 
consignee  refused  to  pay  the  draft,  but  sold  the  property  and  ap- 
plied the  proceeds  to  an  old  debt  due  him  from  the  consignor,  it 
was  held  that  the  bill  of  lading  was  evidence  of  an  appropria- 
tion of  the  proceeds  of  sale  of  the  property  contained  in  the  bill 
of  lading,  whether  it  was  indorsed  or  not ;  and  that  the  consignee 
having  notice  of  the  draft  and  bill  of  lading  before  selling  the 
goods,  was  informed  of  the  appropriation  of  the  proceeds  of 
sale,  and  could  not  apply  them  to  an  old  debt  due  to  himself.^ 

In  a  recent  case  in  Kentuckj^  a  bank  had  discounted  drafts 
drawn  against  bills  of  lading  which  were  deposited  with  the  bank 
without  indorsement  or  other  writing,  and  without  actual  delivery 
of  the  cotton  represented  by  the  bills  of  lading.  The  cotton  was 
subsequently  attached  while  in  transitu  by  creditors  of  the  ship- 
per. It  was  held  that  the  bank  had  a  lien  upon  the  cotton  para- 
mount to  that  created  by  the  levy  of  the  attachment.* 

263.  An  informal  bill  of  lading  or  one  not  drawn  to  order 
or  bearer,  may  be  effectually  pledged  by  delivery  without 
indorsement.  A  delivery  of  any  documentary  evidence  of  prop- 
erty with  an  intent  that  the  transferee  shall  hold  the  property 
in  pledge,  is  a  good  symbolical  delivery  of  it,  so  as  to  vest  a 
special  property  in  the  transferee.^    The  policy  of  the  law  in  this 

L.  J.  169;  Bank  of  Rochester  r.  Jones,  ^  Holmes  v.  German  Security  Bank, 

4  N.  Y.  497 ;  Michigan  Cent,  R.  R.  Co.  87  Pa.  St.  525  ;  approved  and  followed 

V.  Phillips,  60  111.  190;  Peters  v.  El-  in  Holmes  v.  Bailey,  92  Pa.  St.  57. 

liott,  78  III.  321,  326;  Davenport  Bank  *  Petjtt  ^^  Y\r&t  Nat.  Bank,  4  Bush 

V.  Homeyer,  45  Mo.  145  ;  Skilling  v.  (Ky.),  334  ;    and  see  to  like  effect, 

Bollman,  6  Mo.  App.  76.     See,  how-  Skilling  v.  Bollman,  6  Mo.  App.  76. 

ever,  Bissell  v.  Steel,  67  Pa.  St.  443.  «  Gibson  v.  Stevens,  8  How.  384  ; 

1  Merchants'  Bank  v.  Union  R.  R.  First  Nat.  Bank  v.  Crocker,  1 1 1  Mass. 

&  Transportation  Co.  69  N.  Y.  373.  163,  169.    The  court  in  the  latter  case 

^  Dews  V.  Nat.  Exch.  Bank,  91  U.  say:    "  We  have  then  in  this  case  an 

S.    618;    Cayuga    Bank    v.   Daniels,  intent  of  the  general  owners  of  the  flour 

47   N.   Y.  631  ;    Merchants'  Bank  y.  to  make  use  of  it  as  a  security  for  an 

Union  R.  R.  &  Trans.  Co.  69  N.  Y.  advance  of  money  from  the  plaintifTs; 

373.  a  delivery  of  the  bill  of  lading  in  pur- 

201 


§  263.]  PLEDGES   OF   BILLS    OF   LADING. 

matter  was  well  expressed  by  Chief  Justice  Eyre  in  the  last 
centur}^  ;  and  this  policy  certainly  should  not  be  less  liberal  now. 
He  says :  ^  "  I  see  no  reason  why  we  should  not  expound  the  doe- 
trine  of  transfer  very  largely  upon  the  agreement  of  the  parties, 
and  upon  their  intent,  to  carry  the  substance  of  that  agreement 
into  execution." 

In  an  Illinois  case  the  railroad  shipping  receipt  delivered  in 
pledge,  simply  acknowledged  the  receipt  of  certain  goods  from 
the  consignor,  without  naming  any  consignee,  and  stated  that 
"  this  receipt  is  not  transferable."  It  was  contended  that  the  de- 
livery of  this  receipt  without  indorsement  did  not  pass  any  right 
to  the  goods  in  course  of  transportation,  as  against  a  creditor  of 
the  consignor  who  attached  the  goods  in  the  hands  of  the  railroad 
company.  But  the  court  held  that  such  delivei-y  of  the  receipt 
vested  in  the  pledgee  a  special  property  in  the  goods  sufficient  to 
maintain  replevin  against  the  officer  who  made  the  attachment. 
As  to  the  provision  that  the  receipt  was  not  transferable,  the 
court  say  :  ^  "It  is  enough  to  say,  that,  whatever  the  reason  of 
this  provision,  it  must  have  been,  for  some  purpose,  in  the  inter- 
est of  the  railroad  company.  As  the  company  intended  and 
undertook  to  carry  and  deliver  the  flour  to  the  consignees,  the 
delivery  of  the  shipping  receipt  to  them,  or  for  their  benefit,  was 
only  to  the  strengthening  of  their  right  to  have  the  delivery  of 
the  flour  made  to  them ;  and  it  is  not  perceived  how  plaintiffs', 
the  consignees',  assertion  of  right  to  the  property,  through  a  de- 
livery of  the  receipt,  should  interfere  with  any  interest  of  the 
railroad  company,  or  any  object  of  this  provision  in  the  shipping 
receipt.  We  do  not  conceive  that  it  has  any  significance  in  its 
bearing  upon  the  rights  of  the  parties  in  this  suit." 

In  a  Massachusetts  case  it  was  held  that  the  delivery  of  a  car- 
rier's receipt  not  negotiable  in  form,  as  security  for  advances, 
with   the  intention  to  transfer   the  property  in  the  goods,  is  a 

suance  of  that  intent  ;  and  a  valuable  gage,  there  was  a  sufficient  delivery  to 
and  executed  consideration  in  the  dis-  give  to  the  plaintiffs  a  special  prop- 
counting  of  the  draft.  The  fact  that  erty,  which  they  could  enforce  by  suit 
the  goods  were  in  the  custody  of  the  against  any  wrongdoer." 
consignees  would  not  prevent  this  ar-  ^  Haille  v.  Smith,  1  B.  &  P,  563, 
rangement  from  having  the  effect  to  570. 

transfer  the  title  of  consignors   to  the  ^  Peters  v.  Elliott,  78  111.  321,  324, 

plaintiffs.     Whether  it  should  be  re-  per  Sheldon,  J. 
garded  as  a  sale,  a  pledge  or  a  mort- 

202 


HOW   BILLS   OF   LADING   MAY   BE  PLEDGED. 


[§  263. 


symbolical  delivery  of  the  goods  themselves,  and  vests  in  the  per- 
son making  the  advance  a  special  property  sufficient  to  enable 
him  to  maintain  replevin  against  an  officer  who  afterwards  at- 
taches them  as  the  property  of  tlie  general  owner.^  Mr.  Justice 
Ames,  delivering  the  opinion  of  the  court,  said  :  "  It  is  true  that 
a  receipt  of  this  kind  does  not  purport  on  its  face  to  have  the 
quasi  negotiable  character  which  is  sometimes  said  to  belong  to 
bills  of  lading  in  the  ordinary  form  ;  neither  does  it  purport  in 
terms  to  be  good  to  the  bearer.     But  independently  of  any  in- 


1  First  Nat.  Bank  of  Green  Bay  v. 
Dearborn,  115  Mass.  219,  222.  This 
case  is  referred  to  in  the  subsequent 
case  of  Hallgarten  v.  Oldham,  134 
Mass.  (not  printed),  which  arose  upon 
a  pledge  of  a  warehouse  receipt  not 
drawn  to  order  or  bearer,  which  was 
transferred  ia  pledge  by  indorsement 
and  delivery.  Before  any  notice  of 
the  transfer  had  been  given  to  the 
warehouseman,  the  goods  were  at- 
tached as  the  property  of  the  general 
owner.  It  was  held  that  enough  had 
not  been  done  to  give  the  pledgee  a 
good  title  as  against  the  attaching 
creditor.  Holmes,  J.,  referring  to 
National  Bank  of  Green  Bay  v.  Dear- 
born, said  :  "  In  that  case  the  plain- 
tiff discounted  Parks  &  Co.'s  draff 
on  Harvey,  Scudder  &  Co.  against  a 
railroad  receipt,  of  which  the  follow- 
ing were  the  material  words:  "Re- 
ceived from  R.  G.  Parks  &  Co.  one 
hundred  barrels  of  flour  consigned  to 
Harvey,  Scudder  &  Co.,  Boston,"  this 
was  delivered  to  the  plaintiff  in  Wis- 
consin on  the  understanding  that  the 
property  was  thereby  transferred  as 
security  for  the  advances.  Scudder  & 
Co.  declined  to  accept  the  drafts,  and 
the  goods  were  attached  by  the  de- 
fendants. The  plaintiff  brought  re- 
plevin, and  was  held  entitled  to  re- 
cover. It  will  be  observed  that  the 
document  did  not  run  to  order,  and 
was  not  indorsed,  so  that  it  could  not 
be  argued  that  the  railroad  had  at- 
torned in  advance,  and  there  was  no 


notice  to  the  railroad  company,  so  that 
it  had  not  made  itself  the  plaintiff's 
bailee  subsequently  if  ordinary  prin- 
ciples were  to  be  applied.  It  was  said, 
however,  that  the  carrier  became  the 
plaintiff's  bailee  from  the  time  its  re- 
ceipt was  delivered.  A  carrier  does 
stand  differently  from  other  bailees  in 
one  respect.  He  has  no  delectus  per- 
sonarum,  but  is  bound  to  carry  for  any 
one  who  takes  proper  steps  to  make 
him  do  so.  There  is,  too,  the  further 
circumstance  that  the  usual  mode  of 
shipping  grain  is  to  draw  against  it 
and  to  get  a  bank  to  discount  the 
draft.  But  it  may  be  doubted  whether 
the  suggestion  was  warranted  that  a 
carrier  would  not  ordinarily  give  up 
the  goods  except  upon  a  production  and 
surrender  of  the  receipt.  Forbes  v. 
Boston  &  Lowell  R.  R.  133  Mass.  154, 
158.  And  so  far  as  the  language 
might  seem  to  imply  that  the  mere 
passing  of  the  property  as  between 
the  parties  made  the  carrier  bailee  for 
the  plaintiff  by  the  general  law  of 
bailment,  is  too  broad.  But  whatever 
the  scope  of  National  Bank  of  Green 
Bay  V.  Dearborn,  we  cannot  apply  it 
as  a  precedent  in  the  present  case,  so 
long  as  Lanfear  v.  Sumner,  17  Mass. 
110  stands." 

For  the  case  of  Hallgarten  v.  Old- 
ham, see  §§  298-302.  It  seems  hardly 
probable  that  the  narrow  doctrine  of 
delivery  laid  down  in  Lanfear  v.  Sum- 
ner, and  followed  in  IIall.;arten  v.  Old- 
ham, will  be  adopted  elsewhere. 

203 


§§  264,  265.]  PLEDGES   OF   BILLS   OF   LADING. 

dorsement,  or  formal  transfer  in  writing,  the  possession  and  pro- 
duction of  it  would  be  evidence  indicating  to  the  carrier  that  the 
bank  was  entitled  to  demand  the  propertj^  and  that  he  would  be 
justified  in  delivering  it  to  them.  There  are  cases  in  which  the 
delivery  of  a  receipt  of  this  nature,  though  not  indorsed  or  for- 
mally transferred,  yet  intended  as  a  transfer,  has  been  held  to  be 
a  good  symbolical  delivery  of  the  property  described  in  it." 

264.  A  third  person  by  paying  a  draft  drawn  against  a 
bill  of  lading,  and  receiving  the  latter  as  security,  becomes  vested 
with  the  title  to  the  goods  represented  thereby,^  though  the  bill 
of  lading  be  drawn  to  the  consignee's  own  order,  and  it  be  de- 
livered without  indorsement  to  the  person  paying  tlie  draft.  And 
if  the  carrier  delivers  the  goods  without  his  order  to  the  con- 
signee upon  whom  the  draft  was  drawn,  the  delivery  is  wrongful, 
and  the  carrier  becomes  liable  for  the  goods  to  the  holder  of  the 
bill  of  lading.2 

265.  One  who  discounts  a  draft  on  the  faith  of  a  bill  of 
lading  delivered  with  the  draft  has  such  a  property  in  the 
goods  that  he  can  maintain  replevin  against  an  officer  who 
afterwards  attaches  them  upon  a  suit  against  the  general  owner,^ 
or  against  any  other  person  who  holds  the  goods.  It  is  not 
necessary  for  this  purpose  that  the  plaintiff  should  be  the  abso- 
lute owner  of  the  property  ;  it  is  enough  that  he  has  a  right  of 
property  and  of  possession  to  secure  payment  of  the  draft.* 
The  right  of  the  shipper  is  divested  by  his  pledge  of  the  prop- 
erty by  delivery  of  the  symbol  of  it,  leaving  him  only  a  right 
in  the  surplus  money  which  may  remain  after  payment  of  the 
draft.6 

1  Tiedeman  v.  Knox,  53  Md.  612.  4  Hieskell  v.  Farmers'  &  Mechanics' 

2  Joslyn  V.  Grand  Trunk  Ry.  Co.     Nat.  Bank,  89  Pa.  St.  155. 

51    Vt.    92;    Newcomb   v.   Boston   &  5  De  Wolf  v.    Gardner,   12   Gush. 

Lowell  R.  R.  Co.  115  Mass.  230.  (Mass.)    19,   24;    National    Bank  of 

8  First  National  Bank  of  Green  Bay  Chicago    v.    Bayley,    115   Mass.   228; 

V.Dearborn,  115  Mass.  219;  National  Dovvs  v.   Nat.  Exch.  Bank,   91  U.  S. 

Bank  of  Chicago  v.  Bayley,  115  Mass.  618;    National    Bank   r.  Merchants' 

228;  Gibson  v.  Stevens,  8  How.  384;  Bank,  91   U.   S.   92,  95;   Lanfear  v. 

Peters   v.   Elliott,   78  111.  321.      See,  Blossman,  1  La.  Ann.  153. 
however,  Bissell  v.    Steel,  67  Pa.  St. 
443. 

204 


pledgee's  rights  as  against  the  consignor.     [§  266. 

VI.  A  Pledgee's  Rights  as  against  the  Consignor. 

266.  A  bon^  fide  holder  of  a  bill  of  lading  put  into  circula- 
tion with  the  consent  of  the  shipper  has  a  title  to  the  goods  freed 
from  the  equitable  rights  of  the  unpaid  shipper  to  stop  the  goods 
in  transitu.^ 

The  vendor's  right  of  stoppage  in  transitu  is  defeated  by 
his  indorsement  and  delivery  of  a  bill  of  lading  of  the  goods  to 
a  bond  fide  indorsee  for  a  valuable  consideration,  such  as  a  loan 
of  money,  without  notice  of  facts  on  which  such  right  would 
otherwise  exist ;  for  such  indorsement  and  delivery  of  the  bill  of 
lading  passes  the  property  to  the  lender.^  Thus  a  purchaser  of  a 
shipment  of  nuts,  to  be  paid  for  at  three  months,  indorsed  the 
bills  of  lading  as  security  for  a  loan  made  in  good  faith  upon  the 
security.  At  the  time  of  the  application  for  the  loan  the  bor- 
rower was  already  indebted  to  the  lender,  who  said  he  would 
make  the  further  advance  desired,  but  the  borrower  must  first 
cover  his  account.  The  borrower  promised  to  do  this,  though  he 
did  not  name  any  particular  securities,  and  the  lender  at  once 
made  the  further  advance.  On  the  subsequent  arrival  of  the 
ship  with  the  nuts  the  vendor  sought  to  stop  them  in  transitu, 
the  purchaser  having  stopped  payment ;  but  it  was  held  that  the 
pledgee  had  a  good  title  as  against  the  vendor.^  This  is  the 
general  rule,  even  when  the  consideration  for  the  indorsement  of 
the  bill  of  lading  is  an  antecedent  debt,  and  in  no  part  arose  at 
the  time  the  bill  of  lading  was  handed  to  the  transferee  by  the 
lawful  holder.* 

1  Lickbarrow  v.  Mason,  2  T.  R.  63;  judgment  of  the  court,  said  on  this 
S.  C.  1  H.  Bl.  357,  362;  6  East,  21  ;  point:  "  Practically,  such  a  past  con- 
Barber  V.  Meyerstein,  L.  R.  4  H.  L.  sideration  as  is  now  under  discussion 
317;  The  Mary  Ann  Guest,  Olcott,  has  always  a  present  operation.  It 
498;  Dows  v.  Greene,  24  N.  Y.  638;  stays  the  hand  of  the  creditor.  If 
Dows  V.  Rush,  28  Barb.  (N.  Y).  157  ;  the  plaintiff  had  agreed  on  the  day 
Kawls  V.  Deshler,  1  Sheldon  (N.  Y.),  the  bill  of  lading  was  handed  to  him 
48.  to   give   a  week's    time,   there  would 

2  Becker  v.  Ilallgarten,  86  N.  Y.  have  been  a  present  consideration.  Is 
167.  it  necessary  there  should  be  a  formal 

8  Leask  v.  Scott,  2  Q.  B.  D.  376.  agreement    in    lieu   of     that    which, 

*  Leask  v.  Scott,  supra,  dissenting  whether  it  would  support   legal   pro- 

from  Rodger  v.  Comptoir  d'Escompte  ceedings,    as  was    contended   by   the 

de  Paris,  L.  R.  2  P.  C.  393.  plaintiff,  or  not,  was,  no  douljt,  such 

Bramwell,  L.  J.,  in  delivering  the  an  understanding  that,  if  the  phiintifi' 

206 


§§  267,  268.]  PLEDGES   OF   BILLS   OF  LADING. 

267.  The  vendor's  right  of  stoppage  in  transitu  is  not 
discharged  absolutely  by  his  indorsement  of  the  bill  of 
lading  by  way  of  security  or  pledge,  but  that  right  must  be 
exercised  subject  to  the  charge  in  favor  of  such  indorsee,  who 
mu&t  be  paid  off  before  the  vendor  can  assume  full  control  of 
the  goods.  After  the  pledgee  has  been  paid,  the  vendor  stands 
in  exactly  the  same  position  as  to  everybody  else,  as  if  there 
had  been  no  indorsement  of  the  bill  of  lading  by  way  of  security 
or  pledge.  The  vendor's  right  of  stoppage  is  not  defeated  by 
the  pledging  of  the  bill  of  lading,  except  as  against  the  pledgee.^ 

VII.  A  Pledgee's  Rights  as  against  the  Consignee. 

268.  A  shipper  of  goods  does  not  lose  his  title  to  them 
by  inserting  the  name  of  the  consignee  in  a  bill  of  lading  of 
them.-  If  a  time  draft  be  drawn  against  the  bill  of  lading  the 
consignee  acquires  title  to  the  goods  only  in  case  he  accepts  the 
draft.  In  the  mean  time  if  the  draft  be  discounted  on  security  of 
the  bill  of  lading  the  title  to  the  goods  vests  in  the  holder  of  the 
draft.  The  assignee  of  the  bill  of  lading  obtains  a  title  to  the 
goods  not  only  as  against  the  consignor  but  as  against  the  con- 
signee, although  the  former  is  indebted  to  the  latter  in  a  sum 
greater  than  the  value  of  the  goods.^  Thus  the  owner  of  a 
quantity  of  flour  having  consigned  it  to  his  factor  in  another  city 

had   taken    proceedings   against  the  that  a  bond  fide  assignee  of  a  bill  of 

borrower  the  day  after  he  had  received  lading  for  a  valuable  consideration, 

the  security,  he  would  have  committed  and  without   notice  that    the    goods 

a  breach  of   faith?  ...  If  the  bor-  are   unpaid  for,  and    the    purchaser 

rower,  in  this  particular  case,  had  said  insolvent,  is    protected    in    his    title 

this  bill  of  lading  was  coming  forward,  against  the  seller's  right  of  stoppage 

and  he  would  hand  it  to  the  plaintiff,  in  transitu. 

then  value  would  have  been  obtained         2  Q.^^k  of  Rochester  v.  Jones.  4  N. 

by  means  of  the  bill  of  lading;  so,  if  Y.  497;  Michigan  Cent.  li.  R.  Co.  v. 

he  had  said    generally  that    he  had  Phillips,  60  111.  190;  Taylor  v.   Tur- 

securities  coming  forward,  and  would  ner,  87  111.  296;   First  Nat.  Bank  v. 

deposit  them;  and  what  is  the  differ-  Crocker,  111  Mass.  163 ;  Pratt  v.  Park- 

ence  between  a  promise  with  such  a  man,  24  Pick.  (Mass.)  42  ;   Valle  v. 

statement  and  a  promise  without  it  ?  "  Cerre,  36  Mo.  575 ;  Jenkyns  v.  Brown, 

1  Kemp  V.  Falk,  L.  R.  7  App.  Cas.  14  Q.  B.  496. 
573;    affirming  /»  re  Westzinihus,    5         ^  Bank oi  liochesterv.  Jones, supra ; 

B.  &  Ad.  817;  Spalding  v.  Ruding,  6  People's  Nat.  Bank  v.  Stewart,  3  Puag. 

■Beav.  376.  &  Bur.  (N.  B.)  268. 

In  Georgia  it  is  provided  by  statute 
206 


pledgee's  rights  as  against  the  consignee.    [§§  269,  270. 

drew  upon  the  factor  against  the  flour  and  obtained  a  discount  of 
the  draft  upon  a  delivery  of  the  bill  of  lading  as  security.  The 
consignor  being  already  indebted  to  the  factor  for  previous  con- 
signments, the  latter  refused  to  accept  the  draft ;  but  detached 
and  retained  the  bill  of  lading,  and  thereby  obtained  possession 
of  the  flour.  In  a  suit  against  him  by  the  holder  of  the  draft,  he 
was  held  liable  for  a  conversion  of  the  flour.  He  could  acquire  title 
to  the  flour  only  upon  the  condition  of  accepting  the  draft,  and 
he  became  a  wrong  doer  by  taking  possession  of  the  flour  with- 
out such  acceptance.^ 

Upon  the  delivery  of  the  bill  of  lading  to  the  consignee,  the 
title  passes  to  him  from  the  consignor,  so  that  he  has  no  control 
of  the  property  and  his  creditors  cannot  seize  or  attach  it.^ 

269.  If  a  consignee  obtains  the  goods  from  the  carrier 
■without  accepting  drafts  secured  by  the  bills  of  lading,  and 
sells  the  goods,  he  is  liable  to  the  holder  of  the  drafts  for  the  pro- 
ceeds of  the  sale.  He  obtains  no  title  or  authority  under  a  bill 
of  lading  if  he  refuses  to  comply  with  the  terms  upon  which  he 
is  made  consignee,  namely,  the  acceptance  of  payment  of  the 
drafts  drawn  against  it.  The  title  to  the  property  and  the  right 
of  possession  are  both  in  the  holder  of  the  drafts.^ 

Even  if  a  bill  of  lading  be  sent  directly  to  the  consignee 
with  a  draft  upon  him  attached,  or  inclosed  in  the  same  letter,* 
the  consignee  cannot  retain  the  bill  of  lading  and  under  it  take 
possession  of  the  goods  without  accepting  the  draft.^  If  the  con- 
signee retains  the  bill  of  lading  without  accepting  the  draft  he 
acquires  no  right  of  property.^ 

270.  A  pledgee  may  even  deliver  possession  of  the  goods 
to  the  consignee  upon  whom  the  draft  secured  is  drawn  with- 
out losing  his  security,  if  such  delivery  be  made  by  a  special 
indorsement  to  the  effect  that  the  goods  are  pledged  for  the  pay- 
ment of  the  draft,  and  are  placed  in  the  consignee's  custody  "  in 

^  Bank  of  Rochester  v.  Jones,  4  N.  *  Shepherd  v.  Harrison,  L.  K.  5  II. 

Y.  497.  L.  UG,  123. 

2  Flash  V.  Schwabacker,  32  La.  6  i^in-piiL-iJ  t'.  Harrison,  .vi/y^ra;  Han- 
Ann.  35G.  CO  cle  Lima  v.  An^'lo-Peruvian  I{;ink, 

»  Allen  f.Williams,  12  Pick.  (Mass.)  8  Ch.  D.   160,  171,  per  V.  C.  -Malins. 

297.  ®  Shepherd  v.  Harrison,  suj/ni. 

207 


§  271.]  PLEDGES   OF  BILLS  OF   LADING. 

trust  for  this  purpose,  and  is  not  to  be  diverted  to  any  other 
use  until  the  draft  is  paid."  In  such  a  case  the  property  pledged 
and  delivered  was  a  boat-load  of  wheat,  which  on  arrival  the  con- 
signee placed  in  a  warehouse,  and  afterwards  sold  and  delivered 
to  the  purchaser  by  an  order  on  the  warehouseman.  The  pur- 
chaser obtained  advances  upon  the  wheat  from  the  warehouse- 
man, who  had  seen  a  copy  of  the  bill  of  lading  and  of  the 
indorsement  thereon.  In  an  action  by  the  pledgee  against  the 
warehouseman  for  a  conversion  of  the  wheat  it  was  held  that 
such  delivery  of  the  bill  of  lading  did  not  vest  in  the  consignee 
a  title  to  the  wheat  or  confer  upon  him  authority  to  sell  it ;  but 
simply  vested  him  with  the  possession  to  hold  in  trust  for  the 
pledgee,  whose  title  could  not  be  divested  by  any  act  of  the  con- 
signee until  he  had  paid  his  acceptance.^ 

271.  When  a  bill  of  lading  has  been  taken  by  the  con- 
signor, making  the  goods  deliverable  to  his  order,  or  to  some 
person  designated  by  him,  the  inference  is  that  it  was  not  intended 
that  the  property  should  pass  to  the  consignee,  except  by  sub- 
sequent order  of  the  person  holding  the  bill.  Such  intention  is 
almost  conclusive,  although  when  there  are  circumstances  indi- 
cating an  intent  to  pass  the  ownership  immediatel}'^,  notwith- 
standing the  bill  of  lading,  or,  in  other  words,  where  there  is 
anything  to  rebut  the  effect  of  the  bill,  it  is  a  question  for  the 
jury  whether  the  property  passed.^  If,  however,  there  are  no 
circumstances  to  rebut  the  intent  to  retain  the  ownership  ex- 
hibited in  the  bills  of  lading,  and  confirmed  by  the  indorsements 
on  the  bills,  there  is  no  occasion  to  submit  the  question  to  a  jury 
whether  there  was  a  change  of  ownership.  A  bank  discounted 
a  draft  drawn  upon  the  consignee  of  a  quantity  of  turpentine 
and  rosin,  bills  of  lading  of  which  were  delivered  to  the  bank  as 
security.  The  bank  forwarded  the  draft  to  their  agent,  with 
instructions  not  to  deliver  the  bill  of  lading  until  the  draft  was 
paid.  The  consignee  accepted  the  draft,  but  did  not  pay  it,  and 
it  was  retained  by  the  agents  of  the  bank.  The  master  of  the 
vessel,  however,  delivered  the  goods  to  the  consignee,  without 

1  Farmers'  &  Mechanics'  Nat.  Bank  &  Mechanics'  Nat.  Bank  v.  Atkinson, 
V.  Hazeltine,  78  N.  Y.  104;  following     74  N.  Y.  587. 

Farmers'  &  Mechanics'  Nat.  Bank  v.  ^  Dovvs  v.  Nat.  Exchange  Bank,  91 
Logan,  74  N.  Y.  568;  and  Farmers'     U.  S.   618,   per   Strong,  J.;    Ogg   v. 

Shuter,  L.  R.  10  C.  P.  159. 
208 


pledgee's  rights  as  against  the  consignee.     [§  271. 

his  producing  the  bill  of  lading.  Subsequently  the  consignee 
delivered  part  of  the  goods  to  an  auctioneer,  who  made  advances 
upon  them  without  notice  that  the  consignee  had  not  possession 
of  the  bill  of  lading.  The  auctioneer  sold  these  goods  at  public 
auction,  and,  after  deducting  their  advances  and  charges,  paid 
the  balance  to  the  consignee.  After  this  the  bank  demanded  the 
goods  of  the  auctioneer,  and  brought  an  action  of  trover  for  their 
conversion.     It  was  held  that  the  bank  was  entitled  to  recover.^ 

A  ship  which  has  issued  a  bill  of  lading  to  the  consignor's 
order  is  bound  to  deliver  the  goods  to  such  order,  and  may  be 
libelled  for  a  misdelivery.  Thus,  a  member  of  a  New  York  firm 
having  purchased  certain  cotton,  put  it  on  board  a  steamer  for 
New  York,  and  received  a  bill  of  lading  Avhich  he  indorsed  to  a 
bank  as  collateral  security  for  drafts  drawn  upon  the  firm  and 
discounted  by  the  bank.  Upon  the  arrival  of  the  vessel  in  New 
York  the  firm  demanded  the  cotton,  and  obtained  it  without  pro- 
ducing the  bill  of  lading,  which  was  still  held  by  the  bank. 
The  drafts  not  being  paid  at  maturity,  the  bank,  through  its 
cashier,  libelled  the  steamer  in  admiralty,  and  obtained  a  decree, 
which  was  affirmed  by  the  Supreme  Court.^  Mr.  Justice  Strong 
said  :  "  By  issuing  bills  of  lading  for  the  cotton,'  stipulating  for  a 
delivery  to  order,  the  ship  became  bound  to  deliver  it  to  no  one 
who  had  not  the  order  of  the  shipper,  and  this  obligation  was 
disregarded  instantly  on  the  arrival  of  the  ship.  And  it  is  no 
excuse  for  a  delivery  to  the  wrong  persons  that  the  indorsee  of 
the  bills  of  lading  was  unknown,  if,  indeed,  he  was,  and  that 
notice  of  the  arrival  of  the  cotton  could  not  be  given.  Diligent 
inquiry  for  the  consignee,  at  least,  was  a  duty,  and'  no  inquiry 
was  made.  Want  of  notice  is  excused  when  a  consignee  is  un- 
known, or  is  absent,  or  cannot  be  found,  after  diligent  search. 
And  if,  after  inquiry,  the  consignee  or  the  indorsees  of  a  bill  of 
lading  for  delivery  to  order  cannot  be  found,  the  duty  of  the 
carrier  is  to  retain  the  goods  until  they  are  claimed,  or  to  store 
them  prudently  for,  and  on  account  of,  the  owner.  He  may  thus 
relieve  himself  of  a  carrier's  responsibility.  He  has  no  right, 
under  any  circumstances,  to  deliver  to  a  stranger."  It  was 
claimed  that  the  pledgee  delayed  in  presenting  the  bills  of  lading 
for  some  weeks  until  the  drafts  had  fallen  due,  and  had  been  dis- 

1  People's  Nat.  Bank  v.  Stewart,  3         '  The  Thames,  14  Wall,  98,  107. 
Pujrs.  &  Bur.  (N.  B.)  268. 

14  209 


§§  272,  278.]  PLEDGES   OF   BILLS   OF   LADING. 

honored.  But  the  court  said  that  this  delay  could  not  justify 
the  ship's  delivery  of  the  cotton,  on  the  day  after  its  arrival,  to 
persons  who  had  no  bill  of  lading,  and  no  authority  whatever  to 
receive  it.  Had  the  delay  been  instrumental  in  causing  the 
wrongful  delivery,  a  different  case  might  possibly  have  been  pre- 
sented. But,  at  most,  the  laches  of  the  pledgee  was  mere  in- 
action, and  the  wrong  delivery  was  in  no  degree  due  to  it. 

272.  An  agreement  between  a  consignor  and  consignee 
that  the  proceeds  of  all  shipments  shall  be  applied  to  the 
payment  of  previous  advances  made  by  the  latter,  has  no 
effect  as  against  one  who  has  in  good  faith  taken  a  bill  of  lading 
from  the  consignor,  as  security  for  the  purchase-money  of  the 
goods  consigned,  or  for  advances  obtained  by  the  consignor  upon 
such  goods.  Thus,  where  a  purchaser  of  grain  agrees  with  the 
seller  that  the  latter  shall  ship  the  grain  in  the  purchaser's  name 
to  his  commission  merchant  for  sale,  and  the  purchaser  draws 
drafts  upon  the  commission  merchant  for  part  of  the  price,  and 
delivers  the  same  with  the  bills  of  lading  of  the  grain  to  the 
seller,  the  commission  merchant  acquires  no  greater  interest  in  it 
than  his  consignor  had,  although  the  latter  is  indebted  to  him, 
and  has  agreed  that  the  proceeds  of  all  consignments  should  be 
applied  to  the  consignor's  credit  on  account.^  In  such  case,  the 
neglect  of  the  original  seller  of  the  grain  and  holder  of  the  bills 
of  lading  to  notify  the  consignee  of  his  rights  until  the  latter, 
having  obtained  possession  of  the  grain  without  producing  the 
bills  of  lading,  has  sold  the  grain  and  applied  the  proceeds  to 
the  consignor's  credit  on  such  indebtedness,  does  not  interfere 
with  the  seller's  right  to  recover  of  the  consignee  in  an  action 
for  money  had  and  received,  the  proceeds  of  the  sale  of  the  grain 
to  the  extent  of  the  seller's  interest  in  it.''^ 

VIII.  A  Pledgee's  Rights  as  Against  the  Carrier. 

273.  If  the  carrier  deliver  the  goods  to  any  other  per- 
son than  the  indorsee  and  holder  of  such  bill  of  lading,  he 
becomes  liable  to  such  indorsee  and  holder  for  a  conversion  of  the 
goods,  unless  he  can  show  some  valid  excuse.  It  does  not  matter 
that  the  carrier  is  ignorant  of  the  fact  that  the  bill  of  lading  is 

1  Taylor  v.  Turner,  87  111.  296.  ^  Taylor  v.  Turner,  supra. 

210 


pledgee's  rights  as  against  the  carrier.       [§  274. 

not  held  by  the  consignee.  One  who  has  discounted  a  draft 
drawn  against  a  bill  of  lading  is  entitled  to  rely  upon  the  fact 
that  he  holds  the  bill  of  lading  through  the  consignor's  indorse- 
ment, and  that,  according  to  the  ordinary  course  of  business,  the 
goods  cannot  be  obtained  from  the  carrier  except  upon  the  sur- 
render of  the  bill  of  lading.  If  the  carrier  delivers  them  to  the 
consignee  without  requiring  him  to  produce  it,  relying  upon  his 
representation  that  he  is  the  holder  of  it,  he  takes  upon  himself 
the  risk  of  the  truthfulness  of  this  representation,  and  if  deceived 
is  liable  to  the  indorsee  of  the  bill  of  lading  for  the  value  of  the 
goods.^ 

274.  Where  goods  have  been  transferred  from  one  carrier 
to  another  the  last  carrier  is  bound  to  deliver  the  goods  to  the 
holder  of  the  bill  of  lading  issued  by  the  first  carrier.  This  point 
is  illustrated  in  a  recent  case  in  Massachusetts.^  The  indorsee 
of  a  bill  of  lading  who  had  taken  it  as  security  for  advances  upon 
a  bill  of  exchange  attached  thereto,  brought  suit  against  a  rail- 
road company  for  a  conversion  of  a  quantity  of  grain  through  a 
delivery  of  it  to  the  consignee  without  requiring  him  to  produce 
the  bill  of  lading.  "  By  the  bill  of  lading  in  this  case  the  grain 
was  shipped  by  a  vessel  at  Chicago,  deliverable  to  the  order  of 
the  consignor  at  Buffalo.  The  defendant  contends  that,  upon 
the  arrival  of  the  vessel  at  Buffalo  the  bill  of  lading  became 
functus  officio.  If  this  were  so,  it  would  not  affect  the  result  be- 
cause the  bill  of  lading  was  transferred  before  the  vessel  arrived 
at  Buffalo.  But  it  is  clear  that  upon  the  facts  agreed  the  bill  of 
lading  remained  as  the  representative  of  the  property,  at  least 
until  tlie  transit  was  completed  by  the  arrival  at  Boston.  By 
the  usual  course  of  business  in  forwarding  grain  from  Chicago  to 
Boston,  where  the  shipment  is  partly  by  water  and  partly  by 
rail,  a  bill  of  lading  is  issued  by  the  vessel  at  Chicago  ;  the  grain 
is  transferred  from  the  vessel  to  the  cars  at  some  intermediate 
point,  usually  at  Buffalo,  and  the  railroad  company  issues  a  re- 

1  Forbes  v.  Boston  and  Lowell  R.  R.  268;  The  Thames,  14  Wall.  98;  Jef- 
Co.,  133  Mass.  154;  Newcomb  v.  Bos-  fersonville,  Madison  &  Ind.  Ry.  Co.  v. 
ton  &  Lowell  R.  R.  Co,  115  Mass.  230  ;  Irvin,  46  Ind.  180  ;  McEwen  u.  Rail- 
Alderman  V.  P:a8tern  R.  R.  Co.  lb.  road  Co.,  33  Ind.  3G.S. 
233;  First  Nat.  Bank  i;.  Northern  R.  ^  Forbes  v.  Fitchburg  R.  II.  Co., 
R.,  58  N.  H.  203;  People's  Nat.  Bank  183  Mass.  154,  15D. 
V.   Stewart,  3  Bugs.  &  Bur.  (N.  B.) 

211 


§  275.]  PLEDGES   OF   BILLS   OF   LADING. 

ceipt  similar  in  form  to  those  issued  in  this  case.  This  receipt 
contains  a  memorandum  like  the  one  in  this  case,  '  Ex.  Sch. 
Gallatin,'  which  indicates  that  the  grain  was  received  from  a 
vessel  arriving  at  Buffalo  from  Chicago,  and  that  a  bill  of  lading 
has  been  issued  by  that  vessel,  and  is  outstanding.  The  vessel's 
bill  of  lading  is  regarded  as  transferring  the  property,  and  that 
alone  is  used  in  procuring  the  goods  from  the  carrier.  It  is  clear 
that  in  such  cases  the  parties  contemplate  a  continuous  transit 
from  Chicago  to  Boston,  and  that  the  bill  of  lading  is  regarded  as 
the  representative  of  the  grain  during  the  whole  of  the  transit. 
So  far  as  any  question  in  this  case  is  concerned,  the  bill  of  lading 
has  the  same  effect  as  if  it  had  been  a  bill  from  Chicago  to  Bos- 
ton." The  railroad  was  accordingly  held  liable  for  the  value  of 
the  grain,  less  the  freight,  storage  and  other  expenses. 

275.  But  if  the  bill  of  lading  makes  the  goods  deliverable 
to  the  consignee  and  not  to  the  consignor's  order,  the  carrier 
may  be  justified  in  delivering  the  goods  to  the  consignee  without 
requiring  him  to  produce  the  bill  of  lading.^  The  Supreme 
Court  of  Massachusetts  so  decided  in  a  recent  case  where  it  was 
found  that  it  was  the  custom  of  the  railroads  terminating  in 
Boston  to  deliver  to  the  consignee  goods  "  billed  straight,"  as  it 
is  termed,  that  is,  billed  to  a  particular  person,  not  to  order,  when 
they  were  satisfied  of  the  identity  of  the  consignee,  without  re- 
quiring the  production  of  the  bills  of  lading,  and  to  rely  upon  the 
way  bills  to  determine  the  consignee  and  the  form  of  the  con- 
signment. It  was  declared  that  the  holder  of  the  bill  of  lading 
who  discounted  a  bill  of  exchange  attached  to  it,  either  knew  or 
ought  to  have  known,  of  this  custom.  Although  it  does  not 
affect  the  question  of  the  pledgee's  title  as  against  the  consignee, 
it  qualifies  the  carrier's  duties  as  to  the  delivery  of  the  goods. 
It  justified  him  in  delivering  the  goods  to  the  consignee,  at  least 
at  any  time  before  notice  that  the  property  had  been  transferred. 
Under  it  there  was  no  laches  in  not  calling  for  the  bill  of  lading, 
and  in  thus  delivering  there  was  no  violation  of  any  of  the  terms 
of  its  contract  express  or  implied.     Such  delivery,  therefore,  was 

^  Lawrence    v.  Minturn,    17    How.     O'Doughertyy.  Railroad  Co.,  1  Thomp. 
100;   Sweet  v.  Barney  23  N.  Y.  335;     &  C.  (N.  Y.)  477. 

212 


pledgee's  eights  as  against  the  carrier.     [§§  276,  277. 

not  a  misdelivery  whicli  would  amount  to  a  conversion,  and  render 
the  carrier  liable  to  the  pledgee  for  the  value  of  the  goods.^ 

A  debtor  shipped  goods  to  his  creditor  on  account  of  advances 
upon  them,  and  sent  an  invoice  of  the  shipment  with  a  letter 
stating  that  the  shipment  was  made  on  his  indebtedness.  He 
took  a  bill  of  lading  in  his  own  name  which  was  not  forwarded 
to  the  consignee.  It  was  held  under  these  circumstances  that 
the  delivery  to  the  carrier  was  equivalent  to  a  delivery  to  the 
consignee,  and  although  the  consignor  retained  the  bill  of  lading 
he  had  no  such  interest  in  the  goods  as  could  be  subjected  to  at- 
tachment at  the  suit  of  a  creditor  of  his.^ 

276.  A  complete  and  valid  delivery  of  goods  under  a  bill 
of  lading  is  only  made  when  they  come  into  the  hands  of  the 
person  who  has  a  right  to  the  possession  under  it.^  In  an  English 
case  involving  this  point  Chief  Justice  Erie  said  :  '^  "If  it  were 
established  that  a  bill  of  lading —  one  of  the  most  frequent  secu- 
rities for  advances  amongst  mercantile  men,  —  becomes  ex- 
hausted and  extinguished  and  ceases  to  be  a  security  when  the 
ship  has  reached  her  destination,  and  the  goods  which  it  repre- 
sents have  been  landed  and  warehoused,  what  a  wide  door  would 
be  opened  for  fraud.  It  is  scarcely  possible  to  exaggerate  the 
evil  consequences  which  would  be  likely  to  result  from  such  a 
doctrine.     There  is  no  authority  for  it." 

277.  The  lien  of  a  pledgee  of  a  bill  of  lading  covers  freight 
paid  by  him  on  the  goods  pledged.^ 

But  as  against  a  carrier  who  has  delivered  the  goods  wrong- 
fully to  the  consignee  upon  his  paying  the  freight,  and  falsely 
representing  that  he  held  the  bill  of  lading,  the  pledgee  is  not 
entitled  to  recover  the  amount  paid  for  freight  in  addition  to  the 
value  of  the  goods.  At  the  time  of  the  conversion,  the  goods 
were  subject  to  a  lien  for  the  freight.  The  only  interest  which 
the  pledgee  had  in  them  was  their  market  value  less  the  freight. 
This  interest  was  not  increased  by  the  fact  that  the  pledgee  and 

1  Forbes  v.  Boston  &  Lowell  R.  R.  38;  Hieskell  v.  Farmers'  &  Mechan- 
Cc,  133  Mass.  154,  per  Morton,  C.  J.      ics'  Nat.  Bank,  89  Pa.  St.  155. 

2  Straus  r.  Wessel,  30  Ohio.  St.  211.         *  Meyerstein  v.  Barber,  su/n-n. 

8  Meyerstein  r.  Barber,  L.  R.  2  C.  P.         ^  Clark    v.    Dearborn,    103    Mass. 

335. 

213 


§  278.]  PLEDGES   OF   BILLS   OF   LADING. 

the  consignee  bad  agreed,  as  between  tbemselves,  tbat  the  latter 
should  pay  the  freight.  The  payment  by  the  consignee  cannot 
be  considered  as  a  payment  by  the  pledgee.  It  was  a  payment 
by  the  consignee  as  a  part  of  his  scheme  of  fraud.  If  the  pledgee 
can  recover  the  full  value  of  the  goods  and  the  freight,  he  is  a 
positive  gainer  by  the  fraud,  and  will  receive  more  than  the  value 
of  his  interest  at  the  time  the  fraud  was  committed.  Under  the 
circumstances  of  such  a  case  it  has  been  held  that  it  is  just  and 
equitable  that  the  reclamation  by  the  carrier  from  the  consignee, 
of  a  part  of  the  proceeds  of  the  fraud,  should  inure  to  the  benefit 
of  the  carrier ;  and  that  the  plaintiff  is  entitled  to  recover  a  sum 
equal  to  the  market  value  of  the  goods  less  the  freight,  with 
interest  thereon  from  the  time  of  the  conversion. ^ 

But  one  who  has  made  advances  upon  goods  pledged  to  him 
by  indorsement  of  the  bill  of  lading,  in  demanding  them  of  one 
who  had  contracted  to  purchase  them  and  had  obtained  posses- 
sion of  them  upon  paying  the  freight  and  storage,  but  not  in  good 
faith,  need  not  tender  the  amount  of  such  freight  and  storage  as 
a  condition  precedent  to  receiving  the  goods.  In  a  suit  by  such 
pledgee  for  a  conversion  of  the  goods,  the  amount  so  paid  would 
be  deducted  from  the  value  of  the  goods  in  the  assessment  of  dam- 
ages, only  because  the  payment  inured  to  his  benefit,  by  dis- 
charging the  goods  from  a  lien  to  which  they  were  subject,  and 
without  the  payment  of  which  he  could  not  have  obtained  pos- 
session of  the  property.2 

IX.  Rights  of  Pledgees  of  Different  Parts  of  the  same  Bill  of 

Lading. 

278.  If  the  several  parts  of  a  bill  of  lading  be  delivered  to 
different  persons,  the  property  passes  by  the  bill  of  lading  first 
delivered  for  a  valuable  consideration,  unless  another  has  a 
superior  equity.^  Thus  if  a  bill  of  lading  accompanied  by  drafts 
upon  the  consignee  be  delivered  as  security  for  prior  advances, 
the  title  vests  in  him  as  against  a  subsequent  innocent  purchaser 

^  Forbes  v.  Boston  &  Lowell  R.  R.  ^  Kent's    Comm.    308  ;    Barber    v. 

Co.  133  Mass.  154.     The  text  follows  Meyerstein,  L.  R.  4  H.  L.  317;   i\  C. 

in  part  the  language  of  Morton,  C.  J.,  L.  R.  2  C.  P.  38,  661  ;  Skilling  v.  BoU- 

who  delivered  the  decision.  man,  6  Mo.  App.  76. 

2  Adams   v.    O'Connor,    100  Mass. 
515. 

214 


RIGHTS   OF   PLEDGEES   OF  DIFFERENT   PARTS.  [§  278. 

for  value  to  whom  a  duplicate  of  the  bill  of  lading,  or  the  goods 
themselves  are  delivered.^  And  so  if  the  goods  before  arrival  at 
their  destination  be  reshipped,  and  a  new  bill  of  lading  be  issued 
therefore  while  the  original  bill  of  lading  is  outstanding,  and  in 
the  hands  of  one  who  has  taken  it  as  security  for  advances,  the 
property  remains  in  the  latter  although  the  goods  be  delivered 
to  the  consignee  under  the  new  bill  of  lading.  The  holder  of  the 
original  bill  of  lading  may  in  such  case  recover  the  property  in 
an  action  of  replevin,  as  against  the  consignee  or  as  against  one 
who  has  made  advances  to  him  upon  the  goods.^ 

Cotton  was  shipped  in  India  for  London,  the  master  of  the 
vessel  signing  a  bill  of  lading  in  three  parts.  On  the  arrival  of 
the  cotton  in  London,  the  consignee  having  received  from  the 
consignor's  bankers  the  three  parts  of  the  bill  of  lading,  delivered 
two  of  them  as  security  for  advances  upon  the  cotton,  and  after- 
wards fraudulently  deposited  the  third  with  another  person  for  an 
other  advance.  The  latter  obtained  possession  of  the  cotton,  whei-e- 
upon  the  first  pledgee  brought  an  action  of  trover  against  him  for 
converting  the  cotton,  and  it  was  held  that  he  was  entitled  to  re- 
cover against  such  second  pledgee.^  Upon  the  argument  the  plain- 
tiff claimed  that  the  indorsement  to  him  was  by  way  of  pledge,  and 
that  it  passed  to  him  a  sufficient  right  of  property  to  enable  him 
to  maintain  this  action  ;  and  the  defendant  contended  that  while 
his  claim  was  also  by  way  of  pledge,  he  had  the  better  title  be- 
cause he  had  obtained  actual  possession  of  the  property.  In  the 
Court  of  Common  Pleas,  and  also  in  the  Exchequer  Chamber  it 
was  held  that  the  mere  indorsement  of  the  bill  of  lading  was  such 
a  delivery  of  the  goods  as  amounted  to  a  valid  pledge,  and  gave 
the  plaintiff  a  sufiicient  property  to  enable  him  to  maintain  the 
action  against  the  defendant ;  and  this  judgment  was  affirmed 
by  the  House  of  Lords.  To  the  objections  urged  against  this 
conclusion  the  Lord  Chancellor,  giving  his  opinion  in  the  House, 
said :  ^  "  It  is  said  that  a  frightful  amount  of  fraud  may  be  per- 
petrated if  persons  are  allowed  to  deal  in  this  way  with  bills  of 
lading  drawn  in  sets,  if  you  allow  efficacy  to  be  given  to  the  first 
assignment  of  one  of  those  bills,  to  the  detriment  of  persons  who 
may  take,  for  value,  subsequent  assignments  of  the  others.     All 

^  SkilHng  V.  Bollman,  6  Mo.   App.         «  Meyerstein  v.  Barber,  L.  R.  2  C. 

76.  P.  38,  661,  affirmed   Barber  v.  Meyer- 

2  Hieskell  v.  Farmers'  &  Mechanics'  stein,  L.  R.  4  II.  L.  317,  331. 
Nat.  Bank,  89  Pa.  St.  155.  215 


§  279.]  PLEDGES   OF    BILLS    OF    LADING. 

we  can  say  is,  that  such  has  been  the  law  hitherto,  and  that  the 
consequences  of  the  supposed  evil,  whatever  they  may  be,  have 
not  been  considered  to  be  such  as  to  counterbalance  the  great 
advantages  and  facilities  afforded  by  the  transfer  of  bills  of  lad- 
ing. There  is  no  authority  or  reason  for  holding  that  the  person 
who  first  obtains  the  assignment  of  a  bill  of  lading,  and  has  given 
value  for  it,  shall  not  acquire  the  legal  ownership  of  the  goods  it 
represents.  It  seems  to  be  required  by  the  exigencies  of  mankind. 
It  may  be  a  satisfaction  to  be  told  by  Mr.  Justice  Willes  (though 
it  is  a  matter  upon  which  I  put  no  reliance),  that  other  nations 
concur  with  us  in  holding  that,  whatever  inconveniences  there 
may  be  attending  it,  the  person  who  gets  the  first  assignment  for 
value  is  the  person  to  be  preferred." 

In  the  same  case  Lord  Westbury  in  regard  to  the  obligation 
of  the  first  pledgee,  to  give  notice  of  his  rights  to  the  wharfinger 
in  charge  of  the  cargo,  said :  "  It  was  contended  at  the  bar  that 
he  had  been  guilty  of  laches,  because  he  did  not  follow  up  the 
title  he  had  acquired  by  giving  notice  of  it  to  the  wharfinger. 
But  that  is  quite  immaterial  when  a  man  has  got  both  the  right 
of  property  and  the  right  of  possession,  passing  by  a  symbol,  the 
bill  of  lading,  which  is  at  once  both  the  symbol  of  the  property 
and  the  evidence  of  the  right  of  possession.  When  his  title  is 
thus  complete  there  is  no  obligation  on  him  to  give  notice  to  any 
one.  There  was,  therefore,  no  laches  on  his  part,  nor  was  there 
any  ground  of  complaint  that  he  failed  in  ordinary  prudence,  or 
that  he  did  not  in  law  and  equity  complete  his  security." 

279.  But  the  carrier  is  justified  in  delivering  the  goods 
to  the  consignee  on  his  producing  one  of  a  set  of  bills 
though  there  has  been  a  prior  indorsement  of  another  part  as 
security  for  a  loan,  provided  the  cari'ier  has  no  notice  or  knowl- 
edge of  such  prior  indorsement.  Thus  goods  having  been  shipped 
for  London,  the  shipmaster  signed  a  set  of  three  bills  of  lading 
marked  "  First,"  "  Second,"  and  "  Third,"  respectively,  makiug 
the  goods  deliverable  to  the  consignees,  or  their  assigns,  "  the 
one  of  the  bills  being  accomplished,  the  others  to  stand  void." 
During  the  voyage  the  consignees  indorsed  the  bill  marked 
*'  First "  to  a  bank  in  consideration  of  a  loan.  Upon  the  arrival 
of  the  ship  in  London  the  goods  were  placed  in  the  custody  of 
a  dock  company,  to  whom  the  consignee  produced  the  bill  of 
216 


RIGHTS   OF   PLEDGEES   OF   DIFFERENT   PARTS.  [§  279. 

lading  marked  "  Second,"  and  the  dock  company  in  good  faith 
and  without  notice  of  the  bank's  claim  delivered  the  goods.     It 
was  held  by  the  House  of  Lords,  affirming  the  decision  of  the 
Court  of  Appeal,  that  the  dock  company  had  not  been  guilty  of 
a  conversion,  and  that  the  bank  could  not  maintain  any  action 
against  them.i     Lord  Chancellor  Selborne,  in  dehvering  judg- 
ment, said  :    "  Every  one  claiming  as   assignee   under  a  bill  of 
lading  must  be  bound  by  its  terms,  and  by  the  contract  between 
the  shipper  of  the  goods  and  the  shipowner  therein  expressed. 
The  primary  office  and  purpose  of  a  bill  of  lading,  although  by 
mercantile  law  and  usage  it  is  a  symbol  of  the  right  of  property 
in  the  goods,  is  to  express  the  terms  of  the  contract  between  the 
shipper  and  the  shipowner.     It  is  for  the  benefit  of  the  shipper 
that  the  right  to  take  delivery  of  the  goods  is  made  assignable, 
and  it  is  for  the  benefit  and  security  of  the  shipowner  that  when 
several  bills  of  lading,  all  of  the  same  tenor  and  date,  are  given 
as  to  the  same  goods,  it  is  provided  that  '  the  one  of  these  bills 
being  accomplished,  the  others   are  to  stand  void.'     It  would  be 
neither   reasonable  nor  equitable,   nor    in   accordance   with    the 
terms  of  such  a  contract,  that  an  assignment,  of  which  the  ship- 
owner has  no  notice,  should  prevent  a  bond  fide  delivery  under 
one  of  the  bills  of  lading,  produced  to  him  by  the  person  named 
on  the  face  of  it  as  entitled  to  delivery  (in  the  absence  of  assign- 
ment), from  being  a  discharge  to  the  shipowner.     Assignment, 
being  a  change  of  title  since  the  contract,  is  not  to  be  presumed 
by  the  shipowner  in  the  absence  of  notice,  any  more  than  a 
change  of  title  is  to  be  presumed  in  any  other  case  wlien  the 
original  party  to  a  contract  comes  forward  and  claims  its  per- 
formance, the  other  party  having  no  notice  of  anythino-  to  dis- 
place his  right.     He  has   notice  indeed   that  an   assignment  is 
possible,  but  he  has  no  notice  that  it  has  taken  place.     There  is 
no  proof  of  any  mercantile  usage  putting  the  shipowner,  in  such 
a  case,  under  an  obligation  to  inquire  whether  there  has  in  fact 
been  an  assignment  or  not ;  and,  in  the  absence  of  such  usage,  I 
am  of  opinion  that  it  is  for  the  assignee  to  give  notice  of  his  title 
to  the  shipowner,  if  he  desires  to  make  it  secure,  and  not  for  the 
shipowner  to  make  any  such  inquiry." 

^  Glyn  V.  East  &  West  India  Dock  London  and  County  Banking  Co.  v. 
Co.,  L.  R.  7  App.  Cas.  591;  and  see  Ratcliffe,  6  App.  Cas.  722,  T-ioTFuaron 
Shaw  V.  Foster,  L.  R.  5  H.  L.  321  ;     v.  Bowers,  1  Sin.  L.  C.  8th  cd.  782. 

217 


CHAPTER  VII. 


PLEDGES   OF  WAREHOUSE  RECEIPTS. 


I.  How  far  warehouse  receipts  are  nego- 
tiable, 280-297. 
II.  How  tliey  may  be  transferred  in  pledge. 
298-302. 

III.  Rights  of  a  bond  fide  pledgee,  303-313. 

IV.  The    warehouseman    must    have    the 


in  store   before  issuing  a  re- 
ceipt, 314-320. 
V.  The  owner  of  goods  cannot  give  a  valid 
receipt  for  them  as  warehouseman, 
321-326. 


I.  How  far  Warehouse  Receipts  are  Negotiable. 

280.  Warehouse  receipts  by  custom  have  long  been  con- 
sidered as  representing  the  property  mentioned  in  them  ; 
and  tlie  assignment  or  indorsement  of  such  histruments,  has  long 
been  regarded  as  equivalent  to  the  delivery  of  such  property.^ 
The  transfer  of  the  certificate  transfers  to  the  vendee  or  pledgee 
the  legal  title  and  constructive  possession  of  the  property,  and 
the  warehouseman  from  the  time  of  the  transfer  becomes  his 
bailee.  The  delivery  of  the  evidence  of  title  is  equivalent  to  a 
delivery  of  the  property  itself,  and  it  sufficiently  manifests  the 
intention  of  the  parties  that  the  title  and  possession  shall  pass.^ 
Thus,  receipts  issued  by  storage  and  forwarding  merchants  for 
wool  to  be  forwarded  to  consignees  named,  were  sent  by  the 
owner  to  the  consignees  who,  relying  upon  such  receipts,  ac- 
cepted drafts  drawn  against  the  wool.  The  wool  was  attached 
while  in  the  hands  of  the  storage  merchant,  as  the  property  of 
the  consignor.  But  it  was  held  that  the  delivery  of  the  receipts 
to  the  consignees  vested  the  title  and  the  possession  of  the  wool 
in  them,  and  that  the  wool  was  not  liable  for  the  consignor's 


1  Young  V.  Lambert,  L.  R.  3  P.  C. 
142  ;  M'Neil  v.  Hill,  1  Woolw.  96  ; 
Stewart  v.  Phoenix  Ins.  Co.  9  Lea 
(Tenn.),  104  ;  Horr  v.  Barker,  8  Cal. 
603,  614  ;  Second  National  Bank  v. 
Walbridge,  19  Ohio  St.  419;  Gibson 
V.  Chillicothe  Bank,  11  Ohio  St.  311  ; 
Newcomb  v.  Cabell,  10  Bush  (Ky.), 
460;  Western  Union  R.  R.  Co.  v. 
218 


Wagner,  65  111.  197;  Burton  v.  Cur- 
yea,  40  111.  320,  325  ;  St.  Louis  Nat. 
Bank  v.  Ross,  9  Mo.  App.  399; 
Fourth  Nat.  Bank  v.  St.  Louis  Cot- 
ton Compress  Co.  11  lb.  333. 

2  Gibson  v.  Stevens,  8  How.  384, 
400  ;  Yenni  v.  McNamee,  45  N.  Y. 
614,  per  Grover,  J. 


HOW   FAR  WAREHOUSE   RECEIPTS   ARE   NEGOTIABLE.        [§  281. 

debts,  or  if  so  liable,  was  first  subject  to  the  consignees'  lien  for 
advances.^  The  delivery  of  the  symbol  of  the  property  was  as 
effectual  as  an  actual  delivery  of  the  property  itself. 

Of  course  the  assignee  of  a  warehouse  receipt  having  both  title 
and  possession,  has  the  right  to  maintain  an  action  for  the  con- 
version of  the  property,  or  for  the  recovery  of  it.^ 

281.  A  warehouse  receipt,  at  common  law,  is  not,  in  a 
technical  sense,  a  negotiable  instrument,  although  the  prop- 
erty be  made  deliverable  to  "  order  "  or  "  assigns."  The  re- 
ceipt merely  stands  in  place  of  the  property  it  represents,  and 
the  delivery  of  it  has  the  same  effect  in  transferring  the  title  to 
the  property  as  the  delivery  of  the  property  itself.  The  delivery 
of  the  receipt  does  not  transfer  the  contract  so  as  to  enable  the 
assignee  or  indorsee  to  maintain  an  action  upon  it  in  his  own 
name.  There  is  no  privity  of  contract  between  the  warehouse- 
man and  the  assignee.  The  assignee  occupies  no  better  position, 
as  regards  the  warehouseman,  than  his  assignor  had.^  There- 
fore where  a  warehouseman  by  mistake  issued  to  the  owner  at 
different  dates,  two  receipts  for  the  same  property,  both  of  which 
he  assigned  as  security  for  loans,  and  the  assignee  of  the  receipt 
first  issued  having  recovered  the  property  in  replevin  from 
the  assignee  of  the  other  receipt  to  whom  the  warehouseman 
had  delivered  it,  in  a  suit  by  the  last  named  assignee  against 
the  warehouseman  to  recover  the  value  of  the  property,  it  was 
held  he  could  show  the  mistake  as  a  defence  to  the  action.*  The 
owner  acquired  no  rights  against  the  warehouseman  by  virtue  of 
the  second  receipt,  and  he  could  give  no  rights  by  an  assignment 
of  that  receipt. 

In  another  case  a  warehouse  receipt  was  delivered  to  a  pur- 
chaser of  the  goods,  who  subsequently  for  the  purpose  of  having 
the  goods  repacked  by  the  seller  indorsed  the  receipt  in  blank 
and  delivered  it  back  to  him.  The  latter  thereupon,  in  contra- 
vention of  the  purpose  for  which  the  receipt  was  delivered  to  him, 

1  Davis  V.  Bradley,  28  Vt.  118  ;  First  Nat.  Bank  v.  Bates,  1  Fed.  Rep. 
S.  C.  24  Vt.  55  ;  Bryans  v.  Nix,  4  M.      702. 

&  "W.   775,  is   a   similar  case.     Also        »  Burton   v.    Ciiryea,   40    111.    320; 
Broadwell  v.  Howard,  77  111.  305.  Western  Union  11.  it.  Co.  v.  Wagner, 

2  Harris   v.  Bradley,    2    Dill,   284;     65  111.197. 

M'Neil   V.   Hill,    l    Woolworth,    96  ;         *  Sccon<l  Nat.  Bank  v.  Walbridge, 

19  Ohio  St.  419. 

219 


§§  282,  283.]      PLEDGES   OF   WAREHOUSE   RECEIPTS. 

pledged  it  to  a  bank  for  a  loan ;  but  it  was  held  that  although 
the  bank  acted  in  good  faith  it  did  not  acquire  title  to  the  prop- 
ei'ty  represented  by  the  receipt,  as  against  the  purchaser,  who 
might,  notwithstanding  such  transfer,  maintain  replevin  for  the 
property  .1 

282.  There  is  a  distinction  between  the  quasi  negotiability 
of  such  receipts  given  by  custom,  and  the  full  and  complete 
negotiability  given  in  some  states  by  statute.  Under  such  a 
statute  warehouse  receipts  are,  for  the  purposes  of  title,  as  nego- 
tiable as  promissory  notes  or  bills  of  exchange.  Under  all  or- 
dinary circumstances  there  is  an  imperative  presumption  of  title 
and  power  of  disposal  in  the  holder,  A  factor  holding  such  re- 
ceipts in  his  own  name  or  as  indorsee  is  conclusively  presumed  to 
hold  them  as  owner,  with  unlimited  power  of  disposal.  He  can 
bind  his  principal,  contrary  to  his  instructions  by  pledging  them, 
exactly  as  at  common  law  he  might  bind  his  principal  by  pledg- 
ing securities  negotiable  at  common  law.^ 

283.  In  several  states  warehouse  receipts  are  declared  by 
statute  to  be  negotiable,  and  transferable  by  indorsement  in 
blank  or  by  special  indorsement,  in  the  same  manner  and  with 
like  effect  as  bills  of  exchange,  and  with  like  remedy  thereon.^ 
Under  such  statutes  negotiability  cannot  be  extended  beyond  the 
express  terms  of  the  provisions  of  the  statutes.     Thus  warehouse 

^  Burton  v.  Curyea,  40  111.  320,  332,  are  risks  wliicli  men  engaged  in  busi- 

Lawrence,  J.  said  :  "  It  is  asked  what  ness  must  be  content  to  encounter,  and 

security   there   is    in   loaning   money  against  which  the  law  can  afford  them 

upon  a  pledge  of  warehouse  receipts,  no  protection.     The   law  can   punish 

We   answer,    precisely   the   same    se-  roguery,  but  it  cannot  secure  innocent 

curity  as  in  loaning  upon  the  pledge  persons  against  losses  from  its  multi- 

and  delivery  of  the  property  itself.    If  form  devices," 

the  person  pledging  the  property  is  the  ^  Price  v.  Wisconsin  Marine  &  Fire 
owner,  the  security  is  good  to  the  ex-  Ins.  Co.  43  Wis.  267.  The  cases  of 
tent  of  its  value,  and  so  of  the  ware-  Hale  v.  Milwaukee  Dock  Co.  29  Wis, 
house  receipts.  But  if  he  is  not  the  482;  and  Shepardson  r.  Green,  21  Wis, 
owner,  if  he  has  stolen  it,  or  if  he  is  a  539,  in  which  expressions  to  the  con- 
bailee  merely,  and  is  attempting  to  trary  are  criticised.  The  decision  in 
make  a  fraudulent  use  of  the  property  the  latter  case  was  modified  in  Shep- 
intrusted  to  his  keeping,  a  person  pur-  ardson  v.  Gary,  29  Wis.  34. 
chasing  or  receiving  the  property  as  ^  Newcomb  v.  Cabell,  10  Bush 
security,  does  so  in  subordination  to  (Ivy.),  460;  Central  Savings  Bank  v. 
the  title  of   the  true  owner.     These  Garrison,  2  Mo,  App.  58, 

220 


HOW   FAR   WAREHOUSE   RECEIPTS   ARE  NEGOTIABLE.      [§§  284-286. 

receipts  made  payable  to  bearer,  and  not  transferred  by  indorse- 
ment as  provided  by  statute,  are  not  negotiable.^ 

In  Missouri  and  Pennsylvania  the  statutes  in  regard  to  the 
negotiability  of  warehouse  receipts  apply  also  to  bills  of  lading, 
and  these  statutes  have  already  been  given  in  the  preceding 
chapter. 2  The  statutes  of  other  states  relating  exclusively  to  the 
negotiability  of  warehouse  receipts  are  stated  in  the  following 
sections. 

284.  Calif ornia.3  —  Warehouse  receipts  for  property  stored 
shall  be  of  two  classes :  First,  transferable  or  negotiable ;  and, 
second,  non-transferable  or  non-negotiable.  Under  the  first  of 
these  classes,  all  property  shall  be  transferable  by  the  indorse- 
ment of  the  party  to  whose  order  such  receipt  may  be  issued,  and 
such  indorsement  of  the  party  shall  be  deemed  a  valid  transfer  of 
the  property  represented  by  such  receipt,  and  may  be  in  blank 
or  to  the  order  of  another. 

All  receipts  issued  by  any  warehouseman  or  other  person  under 
this  act  other  than  negotiable,  shall  have  printed  across  their  face 
in  bold,  distinct  letters,  in  red  ink,  the  words  "  non-negotiable." 

285.  Connecticut.*  —  Warehouse  receipts  given  for  any 
goods,  wares,  merchandise,  grain,  flour,  produce,  or  other  com- 
modity, stored  or  deposited  with  any  warehouseman,  may  be 
transferred  by  indorsement  thereof,  and  any  person  to  whom  the 
same  may  be  so  transferred  shall  be  deemed  and  taken  to  be  the 
owner  of  the  goods,  wares,  and  merchandise  therein  specified 
so  far  as  to  give  validity  to  any  pledge,  lien,  or  transfer,  made 
or  created  by  any  such  person  or  persons ;  but  no  property  shall 
be  delivered  except  on  surrender  and  cancellation  of  said  original 
receipt,  or  the  indorsement  of  such  delivery  thereon,  in  case  of 
partial  delivery.  All  warehouse  receipts,  however,  which  shall 
have  the  words  "  not  negotiable  "  plainly  written  or  stamped 
on  the  face  thereof,  shall  be  exempt  from  the  provisions  of  this 
section. 

286.  Illinois,^  —  Warehouse  receipts  for  property  stored  in 

1  Fourth   Nat.  Bank  v.   St.  Louis  »  Codes  &  Stats.  Supp.  1880,  §  6855; 
Cotton  Compress  Co.  11  Mo.  App.  333.  Act  Apr.  1,  1878,  §  2. 

2  Missoixri,  §  237 ;.  Pennsylvania,  *  Public  Acts,  1878,  c.  40,  §  6. 
§239.  6  K.  S.  1880,  c.   114,  §    142.      See 

221 


§  -ST.]  PLEDGES   OF  WAREHOUSE   RECEIPTS. 

any  class  of  public  warehouses,  shall  be  transferable  by  the  in- 
dorsement of  the  party  to  whose  order  such  receipt  may  be  issued, 
and  such  indorsement  shall  be  deemed  a  valid  transfer  of  the 
property  represented  by  such  receipt,  and  may  be  made  either  in 
blank  or  to  the  order  of  another.  All  warehouse  receipts  for 
property  stored  in  public  warehouses  other  than  those  used  for 
storing  grain  in  bulk  shall  distinctly  state  on  their  face  the  brand 
or  distinguishing  marks  upon  such  property. 

287.  Indiana.^  —  All  receipts  issued  by  any  warehouseman 
shall  be  negotiable  and  transferable  by  indorsement  in  blank,  or 
by  special  indorsement,  and  with  like  liability  as  bills  of  ex- 
change now  are,  and  with  like  remedy  thereon. 

When  any  warehouse  receipt  is  pledged  as  collateral  security 
the  pledgee  shall  have  power  to  sell  the  same  and  transfer  title 
thereto,  in  such  manner  and  on  such  terms  as  may  be  agreed  to 
in  writing  by  the  parties  at  the  time  of  making  the  pledge.^ 

This  statute  ^  does  not  apply  to  a  receipt  issued  by  a  private 
warehouseman  for  his  own  property  in  his  own  warehouse.  Thus 
a  trader  being  about  to  purchase  a  large  quantity  of  apples  ap- 
plied to  a  bank  for  a  loan,  and  the  bank  agreed  to  make  it  pro- 
vided the  trader  would  convert  his  storehouse  into  a  public 
warehouse  by  taking  out  a  permit  therefor  under  the  statute, 
and  would  place  the  apples  therein,  and  would  issue  warehouse 
receipts  therefore  and  have  them  transferred  to  the  bank  as 
collateral  security.  This  was  accordingly  done.  The  trader  be- 
came bankrupt,  and  his  assignee  having  taken  possession  of  the 
apples,  it  was  held  that  the  proceeds  belonged  to  the  general 
estate  of  the  bankrupt.  There  was  nothing  to  indicate  that  the 
bankrupt  used  his  warehouse  as  a  warehouse  under  the  statute 
in  any  other  way  than  for  the  purpose  specially  intended  by  the 
bank  ;  or  that  the  property  of  any  other  person  than  that  of  the 
bankrupt  was  stored  in  it.     The  property  was  not  stored  "  for  a 

Chicago   Dock   Co.  v.  Foster,  48  111.  classes,  A  &  B ;  the  former  embracing 

507.  those  for  storing  grain  stored  in  bulk, 

1  Acts  1879,  p.  232, §  3;  R.  S.  1881,  and    belonging    to   different   owners; 
§  6543.  and  the  latter  embracing  warehouses 

2  R.  S.  1881,  §  6550.  where  property  of  any  kind  is  stored 

8  The  statute  under  which  this  de-  for  a  consideration.     The  permit  ap-   , 

cision  was  made  was  that  of  March  9,  plied  for  and  issued  in  this  case  was 

1875,    1.   R.    S.   1876,  p.   927.      This  for  a  storehouse  of  the  latter  kind, 
statute   divides  warehouses  into  two 

222 


HOW   FAR   WAREHOUSE  RECEIPTS   ARE   NEGOTIABLE.       [§§  288-292. 

consideration  "  as  the  statute  provided  respecting  warehouses  of 
the  kind  for  which  the  permit  was  procured.  The  receipt  there- 
fore gave  the  bank  no  priority  of  title  or  claim  to  the  property. 
The  receipt  did  not  amount  to  a  delivery  of  the  property  itself. ^ 

288.  Iowa.2  —  All  warehouse  receipts,  certificates,  or  other 
evidences  of  the  deposit  of  property  issued  by  any  warehouse- 
man, wharfinger,  or  other  person  engaged  in  storing  property  for 
others  shall  be,  in  the  hands  of  the  holder  thereof,  presumptive 
evidence  of  title  to  said  property  both  in  law  and  equity. 

289.  Kansas.^  —  All  receipts  for  grain  issued  by  any  ware- 
bouse  shall  be  negotiable  by  indorsement  in  blank,  or  by  special 
indorsement,  in  the  same  manner  and  to  the  same  extent  as  bills 
of  exchange  and  promissory  notes. 

290.  In  Kentucky  ^  warehouse  receipts  are  made  negotiable 
and  transferable  by  indorsement  in  blank,  or  by  special  indorse- 
ment, and  with  like  liability,  as  bills  of  exchange  now  are,  and 
with  like  remedy  thereon. 

291.  Maine.^  —  The  title  to  goods  and  chattels  stored  in  a 
public  warehouse,  or  on  the  wharves  and  premises  of  the  ware- 
houseman, and  in  his  possession,  shall  pass  to  a  purchaser  or 
pledgee,  in  good  faith,  by  the  indorsement  to  such  purchaser  or 
pledgee,  but  not  in  blank,  of  the  warehouseman's  receipt  therefor 
signed  by  the  person  to  whom  the  receipt  was  originally  given,  or 
by  an  indorsee  of  the  receipt,  and  recorded  in  the  books  of  the 
warehouseman  with  whom  such  goods  and  chattels  are  stored. 

292.  Massachusetts.^  —  The  title  to  goods  and  chattels  stored 
in  a  public  warehouse  shall  pass  to  a  purchaser  or  pledgee  by  the 
indorsement  and  delivery  to  him  of  the  warehouseman's  receipt 

^  Adams  v.  Merchants'  Nat.  Bank,  in  any  general  law  or  provision  of  the 

(C.  C.  D.  Ind.  1880,)    2  Fed.  Rep.  general  statutes,  and  is  not  repealed 

174;  S.  C.  9  Biss.  396.  thereby.     Cochran  v.  Ripy,   13  Bush. 

2  R.  Code,  1880  p.  582,  §  2171.  (Ky.)  495. 

«  Laws,  1879,  c.  23  §  154.  5  Laws  1878,  c.  38. 

*  Act  of  March  6,  1869,  §  3.     This  «  Acts  1878,  c.  93,  §  1;  P.  S.  1882, 

act  is  not  repugnant  to  nor  embraced  c.  72,  §  6. 

223 


§§  298-295.]        PLEDGES   OF  WAREHOUSE  RECEIPTS. 

therefor,  signed  by  the  person  to  whom  such  receipt  was  origi- 
nally given,  or  by  an  indorsee  of  such  receipt. 

293.  Maryland.^  —  Every  acceptance  of  an  order,  and  every 
other  voucher  whatsoever,  for  any  goods,  chattels,  or  commodi- 
ties, as  on  storage  or  deposit,  whereby  the  custody  or  possession 
of  such  goods,  chattels,  or  commodities  shall  be  acknowledged  or 
certified  by  any  warehouseman,  wharfinger,  or  other  person  or 
corporation  within  this  state,  and  which  acceptance  or  voucher 
shall  not  on  its  face  provide  or  stipulate  in  terms  that  it  shall  not 
be  negotiable,  shall  be  held  and  taken  when  issued  to  be  a  nego- 
tiable receipt  and  instrument  to  all  intents  and  effects  within  the 
meaning  and  operation  of  this  article. 

294.  New  York.'-^  —  Warehouse  receipts  given  for  any  goods, 
wares,  merchandise,  grain,  flour,  produce  or  other  commodity, 
stored  or  deposited  with  any  warehouseman,  wharfinger,  or  other 
person,  may  be  transferred  by  indorsement  thereof  ;  and  any  per- 
son to  whom  the  same  may  be  so  transferred,  shall  be  deemed 
and  taken  to  be  the  owner  of  the  goods,  wares,  and  merchandise 
therein  specified,  so  far  as  to  give  validity  to  any  pledge,  lien,  or 
transfer  made  or  created  by  such  person  or  persons  ;  but  no  prop- 
erty shall  be  delivered  except  on  surrender  and  cancellation  of 
said  original  receipt,  or  the  indorsement  of  such  delivery  thereon 
in  case  of  partial  delivery.  All  warehouse  receipts,  however, 
which  shall  have  the  words  "  not  negotiable,"  plainly  written  or 
stamped  on  the  face  thereof,  shall  be  exempt  from  the  provisions 
of  this  section. 

The  same  provisions  are  by  a  later  statute  made  applicable  to 
bills  of  lading,  and  to  all  persons  or  corporations  that  shall  or 
may  issue  bills  of  lading  of  any  kind  or  description. 

295.  ^iSrisconsin.^  —  Every  warehouse  receipt  on  which  the 
words  "  not  negotiable  "  shall  not  be  written  or  stamped  upon 
the  face  thereof,  shall  be  deemed  negotiable,  in  like  manner  as 
inland  bills  of  exchange  according  to  the  custom  of  merchants. 
The  payees  or  indorsees  of  such  receipt  payable  to  them  or  their 
order,  and  the  holders  of  every  such  receipt  payable  to  bearer, 

1  R.  Code,  1878,  p.  298,:§  14.        ^  r.  g.  1878,  c.  78,  §§  1676,  1678. 

2  R.  S.  1875,  p.  230,  §  6^;  R.  S.  7th 
ed.  1882,  p.  2260. 

224 


HOW   FAR   WAREHOUSE    RECEIPTS    ARE   NEGOTIABLE.      [§§  296,  297. 

may  maintain  actions  tliereon  in  like  manner  as  in  cases  of  inland 
bills  of  exchange,  and  not  otherwise. 

296.  A  warehouse  receipt,  though  it  be  made  negotiable 
by  statute,  stands  in  lieu  of  the  property.  The  holder  of  a 
warehouse  receipt  takes  no  better  title  than  he  would  if  he  held 
the  goods  themselves.^  The  negotiability  of  the  receipt  serves 
only  to  cut  off  any  defence  the  warehousekeeper  may  have. 
*'  Any  other  construction  would  enable  any  one,  fraudulently  de- 
positing the  goods  of  anothei*,  to  pass  title,  as  against  the  true 
owner,  by  obtaining  a  warehouse  receipt  in  his  own  name."  ^ 

Where  two  or  more  warehouse  receipts  for  the  same  property 
have  been  delivered  to  different  persons,  that  which  was  first  de- 
livered will  prevail.^ 

297.  "Whether  a  warehouse  receipt  is  evidence  of  owner- 
ship or  of  a  pledge  depends  not  merely  uj^on  its  terms,  but  upon 
the  facts  of  the  transaction.  Thus  where  the  owner  of  an  eleva- 
tor purchased  grain  for  another  with  money  furnished  by  the 
latter  for  that  purpose,  and  after  the  purchase  gave  to  the  person 
who  had  advanced  the  money  a  warehouse  receipt,  stating  that 
he  had  received  the  grain  upon  storage,  and  agreeing  to  hold  the 
same  subject  to  the  order  of  the  holder  of  the  receipt,  "  for  all 
advances  of  money  on  the  same,''  these  words  were  held  not  to 
convert  the  receipt  into  a  mere  pledge  ;  but  in  accordance  with 
the  facts  of  the  transaction,  the  grain  was  held  to  be  the  property 
of  the  person  who  advanced  the  money  for  its  purchase.^  The 
receipt  in  this  form  was  properly  used  as  a  memorandum,  or  ac- 
knowledgment by  the  warehouseman,  that  the  holders  of  the  re- 
ceipt had«advanced  the  money  with  which  the  grain  was  purchased. 
It  was  competent  to  show  by  evidence  that  the  receipt  was  so  used. 

And  so  where  a  warehouse  receipt  was  given  for  merchandise 
to  be  held  subject  to  the  holders'  order,  "  they  having  a  lien 
thereon  for  the  full  cost  of  the  same,"  it  was  held  that  the  legal 
effect  of  the  receipt  was  to  pass  to  the  holders  the  general  prop- 

^  First  Nat.  Bank  v.  Boyce,  78  Ky.  ^  Martin  v.  Creditors,  14  La.  Ann. 

42  ;  S.  C.  9  Rep.  405 ;  Greenbaum  v.  393  ;  Second  Nat.  Bank  v.  Walbridge, 

Megibben,  10  Bush  (Ky.),  419,  19  Ohio  St.  419. 

2  First  Nat.  Bank  v.  Boyce,  sujjra,  *  Cool  v.  Philhps,  66  111.  216;  also 

per  Ilines,  J.  Broad  well  v,  Howard,  77  111.  305. 

15  225 


§§  298,  299.]       PLEDGES   OF   WAREHOUSE   RECEIPTS. 

erty  and  the  right  of  possession,  and  not  merel}^  a  special  property. 
The  inference  to  be  drawn  from  this  recital  in  the  receipt  was 
declared  to  be,  either  that  the  property  had  been  purchased  and 
procured  by  the  money  of  the  persons  to  whom  the  receipt  was 
given,  and  so  the  legal  title  passed  to  them  in  accordance  with 
their  equitable  rights  ;  or  that  they  being  the  owners  of  the  mer- 
chandise were  to  retain  the  general  ownership,  until  the  ware- 
houseman should  pay  them  the  full  cost  or  agreed  purchase  price 
of  the  same.  In  either  case  the  warehouseman  had  not  the  gen- 
eral property  in  the  goods,  and  his  interest  was  not  subject  to 
levy  of  execution  by  any  of  his  creditors. ^ 

II.  Hoio  they  may  he  Transferred  in  Pledge. 

298.  A  •warehouse  receipt  need  not  be  in  a  particular 
form.  An  instrument  intended  simply  as  a  memorandum  of  the 
amount  of  goods  on  storage,  if  signed  by  the  warehouseman,  has 
an  assignable  quality,  and  an  indorsement  and  delivery  of  it  to 
one  who  makes  advances  upon  the  faith  of  it,  renders  the  ware- 
houseman liable  to  the  holder  of  it  for  the  goods  it  represents. 
Thus  a  paper  which  recites  that  a  certain  quantity  of  corn  had 
been  received  in  store  for  the  account  of  a  firm  named  is  a  ware- 
house receipt,  and  not  a  mere  memorandum,  although  the  words, 
"or  order"  are  not  used,  nor  are  any  words  used  to  signify  that 
the  corn  would  be  delivered  on  return  of  the  receipt.  The  in- 
dorsement and  delivery  of  such  a  receipt  to  a  third  person  for 
value  passes  the  title  to  the  corn.^ 

299.  Even  the  delivery  of  a  warehouse  receipt  without 
indorsement,  though  it  be  not  wa-itten  to  bearer,  if  the  delivery 
be  with  intent  to  pass  the  title,  is  effectual.^     Thus  a  warehouse 

1  Gibson  v.  Cliillecotbe  Bank,  11  warehouse  receipt  without  indorse- 
Ohio  St.  311.  ment,  the  court  say:  "The  delivery 

2  Harris  v.  Bradley,  2  Dill.  284.  of  the  warehouse  receipt  would  be  as 

3  Gibson  v.  Stevens,  8  How.  384;  efTectual  as  the  delivery  of  the  cotton 
Wilkes  V.  Ferris,  5  Johns.  (N.  Y.)  335;  itself,  and  it  could  make  no  difference 
Horr  V.  Barker,  8  Cal.  609,  613,  where  that  the  warehouse  receipt  was  not  in- 
the  court  say,  "  the  delivery  of  a  ware-  dorsed  by  the  pledgor.  There  is  noth- 
house  receipt  without  assignment  is  iug  in  this  at  variance  with  anything 
sufficient  79 /-im a yaci'e  to  pass  the  title."  decided  or  said  by  this  court  in  Erie 

In  St.  Louis  Nat.  Bank  v.  Ross,  9  &  Pacific  Dispatch  v.  St.  Louis  Cot- 
Mo.  App.  399,  where  there  had  been  ton  Compress  Co.  6  Mo.  App.  172. 
a  pledge  of  cotton  by  delivery  of  the     The  transfer  of  a  warehouse  receipt 

226 


HOW   THEY   MAY   BE   TRANSFERRED  IN  PLEDGE.  [§  800. 

receipt  delivered  without  indorsement  is  a  sufficient  delivery  of 
the  property  to  sustain  a  pledge  as  against  subsequent  attaching 
creditors  of  the  pledgor,  although  the  receipt  does  not  make  the 
property  deliverable  to  bearer,  but  "  deliverable  only  on  return  of 
the  receipt ;  "  for  the  mere  delivery  of  the  receipt  to  the  pledgee 
enables  him  to  take  control  of  the  property.  Any  delivery  which 
gives  the  pledgee  the  immediate  actual  control  of  the  property,  is 
sufficient  to  sustain  the  pledge.^ 

It  has  already  been  noticed  that  a  bill  of  lading  may  be  effec- 
tually pledged  by  delivery  without  indorsement.^  It  is  well  said 
by  the  Supreme  Court  of  California,^  that  "upon  principle, 
reason,  and  convenience,  it  is  difficult  to  draw  any  substantial 
difference  between  a  bill  of  lading  and  a  warehouse  receipt.  If 
the  delivery  of  the  one  can  pass  the  title  to  the  property  de- 
scribed therein,  the  delivery  of  the  other  should  have  the  same 
effect.    There  is  no  substantial  difference  between  the  two  cases." 

300.  Contrary  to  the  general  rule  that  a  complete  de- 
livery of  property  represented  by  a  warehouse  receipt  or  bill 
of  lading  may  be  made  by  merely  delivering  this  document, 
though  it  be  not  negotiable  in  form,  is  a  recent  decision  of  the 
Supreme  Court  of  Massachusetts."^    The  owner  of  goods  stored  at 

not  made  negotiable  by  indorsement  of  the  goods  until  the  warehouseman 
and  delivdVy  can  convey  to  the  trans-  is  notified  thereof,  and  agrees  to  hold 
feree  no  greater  rights  than  would  be  the  goods  for  the  assignee.  Benjamin 
acquired  by  a  transfer  of  the  goods  on  Sales,  §  815.  No  substantial  reason 
which  the  receipt  represents.  That  is  offered  for  giving  to  the  assignment 
we  have  said.  But  it  does  not  follow  of  such  an  instrument  an  effect  differ- 
frora  this,  that  one  may  not  pledge  ing  materially  from  that  of  an  assign- 
cotton  by  delivering  the  unindorsed  ment  of  a  bill  of  lading."  Referring 
cotton  note,  as  effectually  as  by  de-  to  the  case  of  Horr  v.  Barker,  supra, 
livering  to  the  pledgor  the  bales  them-  the  court  continue:  "the  doctrine  of 
selves."  that  case  has  not  been  questioned,  so 

1  Whitney  v.  Tibbits,  17  Wis.  359;  far  as  we  are  aware,  by  the  courts  of 
Hale  V.  Milwaukee  Dock  Co.  29  Wis.  this  state.  If  an  assignment  of  the 
482.  receipt  will  transfer  the  title  to  the 

2  §§  261,  262.  goods,  it  must  necessarily  follow  that 
8  Ilorr  V.  Barker,  8  Cal.  609,   613  ;     the  possession  of  the  receipt,  indorsed 

In  Davis  v.  Russell,  52  Cal.  611,  the  in  blank,  is  presumptive  evidence  of 

same  court  say:   "  It  was  held  in  many  the   ownership  of   the    goods   by   the 

cases  in  the   English  courts,  that  an  holder  of  the  receipt." 

assignment  of  such  a  receipt  does  not  *  llallgarten  v.  Oldham,  134  Mass. 

amount    to    a    constructive    delivery  — . 

227 


§  300.]  PLEDGES    OF   WAREHOUSE   RECEIPTS. 

a  private  warehouse  took  a  receipt  whereby  the  warehouseman 
promised  to  deliver  them  to  him,  and  not  to  his  order,  upon  the 
payment  of  charges.  The  owner  indorsed  this  receipt  in  blank 
and  delivered  it  to  a  creditor  as  collateral  security.  Before  the 
latter  had  given  any  notice  of  the  transfer  to  the  warehouseman 
the  goods  were  attached  as  the  property  of  the  general  owner.  It 
was  held  that  there  had  not  been  a  sufficient  delivery  of  the  goods 
to  the  pledgee  to  protect  him  against  the  attaching  creditor.  This 
decision  is  based  upon  the  rule  laid  down  in  an  earlier  decision 
of  the  court,^  that  an  actual  delivery  of  property,  that  is  a  change 
of  possession,  is  essential  to  protect  a  purchaser,  as  against  an 
attaching  creditor.  Mr.  Justice  Holmes,  delivering  the  opinion  of 
the  Court,  said:  "The  question  is  then  how  the  transfer  of  any 
document  can  have  that  effect.  The  goods  are  in  the  hands  of 
a  middle-man  and  they  remain  there.  A  true  change  of  posses- 
sion could  onl}^  be  brought  to  pass  by  his  becoming  the  servant 
of  the  purchaser  for  the  purpose  of  holding  the  goods  so  that  his 
custody  should  become  the  possession  of  his  master.  But  this 
is  not  what  happens,  and  it  has  been  held  that  less  would  satisfy 
the  law.  A  carrier  or  the  warehouseman  in  this  case  is  not  the 
servant  of  either  party  quoad  the  possession  but  a  bailee  holding  in 
his  own  name,  and  asserting  a  lien  for  his  charges  against  all 
parties.  He  alone  has  possession  of  the  goods  whether  the  docu- 
ment is  transferred  or  not.  But  it  has  been  held  that  the  princi- 
ple of  the  rule  requiring  a  delivery  is  satisfied,  although  Ihe  letter 
of  it  is  not,  if  the  possessor  of  the  goods  becomes  the  purchaser's 
bailee.^  Now  it  is  obvioiis  that  a  custodian  cannot  become  the 
servant  of  another  in  respect  of  his  custody  except  by  his  own 
agreement,  and  a  fortiori  when  that  custodian  does  not  yield  but 
maintains  his  own  possession,  it  is  clear  that  his  custody  cannot 
inure  to  the  benefit  of  another  as  if  it  were  possession  of  that 
other,  unless  the  bailee  consents  to  hold  for  him  subject  to  his 
own  rights.  The  only  way  therefore  in  which  a  document  can 
be  a  symbol  of  the  goods  in  a  bailee's  hands,  for  the  pui'pose  of 
delivery  to  a  purchaser  is  by  showing  his  consent  to  become  the 
purchaser's  bailee.  It  may  or  may  not  be  that  if  a  warehouse 
receipt  contains  an  undertaking  to  deliver  to  order,  that  under- 

1  Lanfear  v.  Sumner,  17  Mass.  110.     Denipsey  v.  Gardner,  127  Mass.  381, 

2  Tux  worth  V.  Moore,  9  Pick.  347;     383. 
Russell  V.  O'Brien,  1 27  Mass.  349, 354 ; 

228 


HOW   THEY   MAY   BE   TRANSFERRED  IN  PLEDGE.         [§  301. 

taking  is  to  be  regarded  as  an  offer  by  the  warehouseman  to  any- 
one who  will  take  the  receipt  on  the  faith  of  it,  and  that  it  will 
make  him  warehouseman  for  the  indorser  without  more,  on  or- 
dinary principles  of  contract.^  .  .  .  The  appeal  to  commercial 
usage  cannot  help  the  plaintiff's  case.  If  there  be  any  usage  to 
treat  such  documents  as  this  as  symbols  of  propert}^  in  the  sense 
of  the  argument  for  the  plaintiffs,  it  is  simply  a  usage  to  disre- 
gard well  settled  rules  of  law  affecting  the  rights  of  third  per- 
sons. But  we  doubt  if  a  prudent  merchant  would  advance  on 
the  indorsement  of  a  private  warehouse  receipt  not  running  to 
order  before  he  had  made  sure  of  the  warehouseman's  assent. 
We  are  confirmed  in  the  view  which  we  take  by  observing  that 
the  legislature  in  dealing  with  public  warehousemen  and  pro- 
viding that  the  "  title  to  goods  stored  &c.,  .  .  .  shall  pass  to  a 
purchaser  or  pledgee  by  the  indorsement  and  delivery  to  him  of 
the  warehouseman's  receipt,"  ^  as  a  preliminary  to  that  result  ex- 
pressly requires  that  the  receipt  "shall  be  negotiable  in  form." 

301.  A  warehouse  receipt  -which  recites  that  the  property 
therein  mentioned  is  deliverable  to  bearer,  may  be  transferred 
by  the  owner  without  indorsement  so  as  to  pass  the  title  to  the 
property,  if  the  transfer  be  made  with  that  intent.  A  statute 
which  provides  that  warehouse  receipts  may  be  transferred  by 
indorsement,  does  not  operate  to  prevent  the  passing  of  title  by 
delivery  without  indorsement,  if  the  language  of  the  statute  be 
permissive  only  and  not  imperative  ;  for  the  right  exists  without 
the  statute.  The  object  of  such  a  statute  is  not  to  prevent  the 
owner  of  the  property  from  passing  the  title  in  any  manner  pre- 
viously effectual  for  that  purpose,  but  to  protect  those  who  deal 

^  "  That  is  the  argument  of  Benja-  necessary,  stands  on  the  same  ground, 

min  on  Sales,  2d  ed.,  676  e<  se*^.,  criticis-  If  the  custodian  has  not  assented  in 

ing  Farina  v.  Home,  16  M.  &  W.  119,  advance  he  must  assent  subsequently; 

and  Blackburn   on    Sales,    297.     But  and  the  principle  is  the  same  whether 

the  criticism    and   the  case   agree  in  an  express  acceptance  of   a  delivery 

the  assumption  that  the  only  way  in  order  be  required  or  it  is  held  suffi- 

whicli  the  indorsement  of  a  document  cient   if    he    does    not    dissent  when 

or  title  can  liave  the  effect  of  a  delivery  notified.      Boardman    v.    Spooner,    13 

is  by  making  the  custodian  bailee  for  Allen,  353,  35  7,  C.  J. ;  instructions  of 

the  holder  of  the  document,  and  that  Shaw    C.  J.  to  the  jury  in    Carter  v. 

he  cannot  be  made  so  otherwise  than  Willard,    19    Pick.  1,  3;    Bentall    v. 

by  his  consent.  The  necessity  for  Burn,  3  B.  &  C.  423."  Per  Holmes,  J. 
notice  in   those  cases  when  notice  is         ^  P.  S.  c.  72,  §  6. 

229 


§§  302,  303.]       PLEDGES    OF   WAREHOUSE   RECEIPTS. 

with  persons  who  are  intrusted  with  such  evidences  of  title  only 
as  factors  or  agents. ^ 

Under  the  statute  of  Missouri  it  is  held  that  there  must  be 
both  indorsement  and  delivery  to  confer  negotiability  upon  a 
warehouse  receipt.  A  warehouse  receipt  payable  to  bearer  is 
not  negotiable  unless  indorsed  by  the  owner  and  delivered.  The 
statute  makes  such  receipt  negotiable  by  indorsement  and  de- 
livery ;  not  by  indorsement  without  deliver}^  nor  by  delivery 
without  indorsement.^  But  it  is  not  to  be  inferred  from  this  de- 
cision that  an  effectual  pledge  of  such  a  receipt  cannot  be  made 
without  indorsement ;  but  only  that  a  transfer  not  made  negoti- 
able by  indorsement  and  delivery  can  convey  to  the  transferee  no 
greater  rights  than  would  be  acquired  by  a  transfer  of  the  goods 
which  the  receipt  represents.  A  pledge  by  delivery  of  the 
receipt  unindorsed  is  as  effectual  as  a  pledge  by  delivery  of  the 
goods  themselves.^ 

302.  An  acknowledgment  of  notice  of  the  transfer  of  a 
warehouse  receipt,  signed  in  blank,  by  the  warehouseman, 
the  name  of  the  transferee  being  omitted,  makes  the  warehouse- 
man responsible  to  a  pledgee  holding  the  receipt,  whose  name 
may  afterwards  be  inserted ;  and  it  is  immaterial  whether  the 
warehouseman  had  actual  knowledge  of  the  person  to  whom  the 
transfer  was  made  or  not.^ 

III.  Rights  of  a  bond  fide  Pledgee. 

303.  A  fraudulent  purchaser  who  has  obtained  a  ware- 
house receipt  for  the  property  may  give  a  good  title  to  it, 
by  transferring  the  receipt  to  bond  fide  pledgee  before  the  seller 
has  taken  any  step  to  disaffirm  the  sale  on  account  of  the  fraud.^ 
The  transfer  of  the  receipt  passes  the  title  as  effectually  as  would 

1  Ricer.  Cutler,  17  Wis.  352.  s  g^  Loujg    j^at.  Bank   v.  Ross,   9 

2  Erie    &   Pacific    Dispatch   v.    St.     Mo.  App.  399,  411. 

Louis  Compress  Co.  6  Mo.  App.  172.  ^  Central  Savings  Bank  v.  Garrison, 

It  would  have  been  easy  for  the  legis-  2  Mo.  App.  58. 

lature  to  say  that  warehouse  receipts  ^  Hoffman  v.  Noble,  6  Met.  (Mass.) 

should  be  negotiable  in  the  same  man-  68;  Ditson    v.   Randall,   33  Me.    202. 

ner  as  bills  of  exchange,  and  then  the  Chicago  Dock    Co.  v.   Foster,  48  111. 

statute  would   be    susceptible   of    the  507;  Fourth  Nat.   Bank  v.  St.   Louis 

interpretation  sought  to  be  given  to  it.  Cotton  Comp.  Co.  11  Mo.  App.  333. 
Per  Bakewell,  J. 

230 


RIGHTS   OF   A   BONA   FIDE   PLEDGEE.  [§  304. 

the  actual  handing  over  the  property  which  is  the  subject  of  the 
receipt.-'  Thus,  the  owner  of  a  cargo  of  corn  liaving  agreed  to 
sell  it,  sent  the  cargo  to  a  warehouse  designated  by  the  purchaser 
to  have  the  corn  discharged.  The  warehouseman  made  out  and 
delivered  a  receipt  to  the  purchaser,  who  immediately  pledged  it 
as  security  for  a  loan  made  on  the  faith  of  it.  The  purchaser 
was  insolvent  at  the  time,  and  failed  to  pay  the  price  of  the  corn, 
and  the  seller  replevied  it.  It  was  held  that  the  buyer's  posses- 
sion of  the  receipt  was  equivalent  to  his  possession  of  the  corn, 
and  that  the  pledgee  having,  in  good  faith,  made  advances  on  the 
receipt,  he  was  entitled  to  protection.^  The  seller  claimed  that 
the  warehouseman  should  have  sent  the  receipt  to  him,  instead 
of  giving  it  to  the  buyer ;  but  it  was  held,  under  the  circum- 
stances of  the  case,  that,  inasmuch  as  the  seller  had  not  informed 
the  warehouseman  of  his  claim  to  hold  the  corn  until  it  was  paid 
for,  the  latter  was  not  bound  to  protect  the  seller.^  But,  even  if 
the  warehouseman  had  been  chargeable  with  omission  or  mistake 
in  delivering  the  receipt  to  the  purchaser,  the  latter,  having  the 
apparent  title  and  right  of  possession,  could  effectually  pledge 
the  property,  and  the  seller  would  be  left  to  his  remedy  against 
the  warehouseman. 

304.  Distinction  between  possession  obtained  by  fraud 
and  possession  voluntarily  parted  with.  —  There  is  an  obvious 
distinction  between  cases  where  goods  or  non-negotiable  securities 
have  been  obtained  by  fraud  and  felony  against  the  will  of  the 
owner,  and  cases  where  the  owner  has  voluntarily,  although  in- 
duced by  false  pretences  or  representations,  delivered  possession. 
In  the  one  case,  the  owner  has  no  intention  of  parting  with  his 
property,  in  the  other  he  has.*  In  the  one  case,  the  property 
having  been  feloniously  taken  from  the  owner,  no  title  passes 
from  him  ;  but  in  the  other,  the  owner  having  voluntarily  in- 
vested another  with  the  power  of  disposal,  he  is  estopped  as 
against  an  innocent  third  person,  dealing  upon  the  faith  of  such 
power,  from  claiming  title  himself.    "  If  one  person  arms  another 

'  Western    Union     11.    R.    Co.    v.  1  Ilnn  (N.  Y.),  193;  Paddon  v.Tay- 

Wagner,  65  111.  197;    Burton   v.   Cur-  lor,  44  N.  Y.  371. 
yea,  40  III.  ,3-20.  s  Iloyt  v.  Baker,  supra;  Hazard  v. 

2  Iloyt  V.   Baker,  15  Abb.  (N.  Y.)  Abel,  15  Abb.  (N.  Y.)  Pr.  N.  S.  413. 
Pr.  N.  S.  405;    McConibie  v.  Spader,         *  White  v.  Garden,  10  C.  B.  919. 

231 


§  304.]  PLEDGES   OF   WAREHOUSE   RECEIPTS. 

with  a  symbol  of  pi'operty,  he  should  be   the  sufferer,  not  the 
person  who  gives  credit  to  the  operation,  and  is  misled  by  it. "  ^ 

This  subject  is  well  illustrated  by  a  recent  case  in  England 
before  the  Queen's  Bench  Division. ^  Advances  were  obtained 
upon  a  pledge  of  sundry  lots  of  flour,  which  were  warehoused  in 
the  pledgee's  name  ;  and  subsequently  the  owner,  upon  a  pledge 
of  the  same  flour,  obtained  advances  from  another  person,  who 
was  in  ignorance  of  the  prior  transaction  ;  the  owner,  by  fraudu- 
lent representations,  having  procured  from  the  first  pledgee  a 
delivery  order  for  the  flour,  which  he  gave  to  the  second  pledgee, 
who  obtained  possession  of  the  flour,  and  sold  it.  In  an  action 
by  the  first  pledgee  against  the  second  pledgee,  it  was  held  that 
the  former  must  be  taken  to  have  intended,  by  giving  the  owner 
the  delivery  order,  to  revest  the  whole  property  in  the  flour  in 
him,  although  the  order  was  given  to  enable  the  owner  to  sell 
the  flour  upon  his  agreement  to  pay  over  to  this  pledgee  the  pro- 
ceeds of  the  sale  ;  and  that,  although  this  pledgee  might  have 
revoked  the  delivery  order,  as  having  been  procured  by  fraud,  so 
long  as  the  flour  remained  in  the  owner's  hands,  yet  when  it  had 
been  transferred  to  the  second  pledgee,  the  title  of  the  latter  was 
indefeasible  to  the  extent  of  the  advances  made  in  good  faith. 
The  pledgor  having  been  allowed  by  the  prior  pledgee  to  appear 
as  the  ostensible  owner  of  the  flour,  and  to  exercise  uncontrolled 
dominion  over  it,  it  would  be  in  the  highest  degree  unjust  and 
inequitable  that  the  subsequent  pledgee,  who  had  innocently  ad- 
vanced money  on  the  goods  in  the  ordinary  course  of  commercial 
dealing,  should  suffer  through  the  improvident  conduct  of  the 
prior  pledgee,  or  from  want  of  proper  caution  on  his  part.^ 
Upon  appeal,  this  decision  was  affirmed,  Bramwell,  Lord  Justice, 
saying  :  "  The  plaintiffs  had  only  a  special  property  as  pledgees  ; 
that  property  they  gave  up  under  a  fraud,  and,  had  the  pledgors 
still  retained  the  goods,  the}^  could  have  resumed  them.  They 
might  have  said:  You,  the  pledgors,  have  got  these  goods  bj^ a 
fraud,  and  our   special   property  in  them   is   not  divested ;    but 

1  Per  Lord  Chancellor  Hatherly,  in  Newington,  4  Q.  B.  D.  32,  35,  a  case  in- 
Vickers  v.  Hortz,  L.  K.  2  H.  L.  So.  volving  the  same  principle,  and  Root 
113,  115.  V.    French,    13    Wend.    (N.  Y.)   570. 

2  Babcock  v.  Lawson,  4  Q.  B.  D.  See,  also,  Robertson  v.  Hay,  7  Weekly 
394.  Notes  of  Cases,  546  ;  Gill  v.  Hutchi- 

3  Per  Cockburn,  C.  J.,  in  Babcock  son,  lb.  545 ;  Combes  v.  Chandler,  33 
V.   Lawson,   supra,  citing    Moyce   v.  Ohio  St.  178. 

232 


RIGHTS   OF   A   BONA   FIDE   PLEDGEE.        [§§  305,  306. 

they  cannot  say  that  against  a  person  who  had  obtained  posses- 
sion of  them  from  the  pledgors  bond  fide.  The  case  is  somewhat 
analogous  to  that  where  a  person  is  induced  to  part  with  his 
goods  by  fraud  ;  the  contract  is  voidable,  and  he  can  recover  back 
the  goods ;  but  if  the  person  who  has  fraudulently  obtained  the 
goods  part  with  them  to  a  bond  fide  purchaser,  the  purchaser  can 
hold  the  property  against  the  person  defrauded."  ^ 

305.  Possession  obtained  in  good  faith  by  a  pledgee  pro- 
tects him  against  the  claim  of  a  prior  pledgee,  whom  the  owner 
fraudulently  induced  to  part  with  possession.  Thus  a  party  lent  a 
mercantile  firm  his  acceptances,  taking  from  them  a  memorandum 
in  this  form  :  "  As  security  for  the  due  fulfilment  on  our  part  of 
this  undertaking,  we  have  warehoused  in  your  name  sundry  lots 
of  flour,  and  in  consideration  of  yonv  delivery  to  us  or  our  order 
said  flour  as  sold,  we  farther  undertake  to  specifically  pay  you 
proceeds  of  all  sales  thereof,  immediately  on  their  receipt." 
Subsequently  another  party  in  ignorance  of  this  fact,  and  be- 
lieving the  flour  to  be  the  property  of  the  general  owners,  agreed 
to  advance  money  on  the  security  of  the  flour,  on  the  terms  that 
he  should  have  absolute  possession  of  the  flour  and  power  to  sell 
it.  The  owners  then  fraudulently  represented  to  the  first  pledgee 
that  they  had  found  a  purchaser  for  the  flour,  and  would  hand 
over  to  him  the  amount  received  as  the  price,  and  thus  induced 
him  to  part  with  the  possession  of  the  flour.  The  second  pledgee 
having  obtained  possession  of  the  flour  sold  it,  whereupon  the 
first  pledgee  brought  an  action  against  him  to  recover  its  value  ; 
but  it  was  held  that  the  defendant  having  obtained  possession  of 
the  flour  bond  fide  the  transfer  to  him  was  valid,  and  the  plaintiff 
had  no  property  which  would  entitle  him  to  recover.^ 

306.  An  innocent  pledgee  of  a  warehouse  receipt  takes  a 
title  superior  to  the  lien  of  a  vendor  who  permits  the  receipt 
to  pass  into  the  hands  of  the  vendee,  in  such  a  way  as  to 
enable  him  to  pledge  it.  A  dealer  in  cotton  was  in  the  habit  of 
selling  cotton  to  a  cotton  buyer  under  an  arrangement  which  was 
intended  to  insure  the  seller  payment  for  the  cotton,  before  he 
should  part  with  possession  of  it.     This  arrangement  was  that 

1  Babcock  v.  Lawson,  5  Q.  B.  D.  "  Babcock  v.  Lawson  (Ct.  of  App. 
284,  286.  1880),  42  L.  T.  Hep.  N.  S.  289. 

233 


§  306.]  PLEDGES   OF  WAREHOUSE  RECEIPTS. 

when  the  purchaser  was  ready  to  ship  a  parcel  of  cotton  the  seller 
should  deliver  the  cotton  notes,  which  represented  the  cotton  in 
a  warehouse,  to  the  agent  of  a  freight  line,  who  thereupon  was 
to  give  a  receipt  for  the  cotton  notes,  declaring  that  bills  of  lad- 
ing should  be  issued  on  return  of  the  receipts.  The  purchaser 
was  then  to  pay  the  purchase  money  for  tiie  cotton  before  the 
seller  should  part  with  the  carrier's  receipts.  This  course  of  deal- 
ing was  continued  for  some  time,  but  the  carrier  disregarded  one 
feature  of  it,  by  delivering  the  bills  of  lading  to  the  purchaser 
without  requiring  a  surrender  of  the  receipts  given  to  the  seller 
for  the  cotton  notes.  Finally  the  seller  delivered  to  the  agent  of 
the  freight  line,  certain  cotton  notes  representing  cotton  sold  to  this 
purchaser,  and  took  the  agent's  receipt  therefor  in  the  usual  form. 
The  purchaser  took  these  cotton  notes  and  substituted  them  at  a 
bank  for  certain  other  cotton  notes,  upon  which  the  bank  had 
made  advances  as  collateral  security.  The  purchaser  imme- 
diately afterwards  failed  and  absconded.  The  seller  of  the  cotton 
thereupon  took  possession  of  the  cotton  sold,  which  was  still  in 
the  warehouse,  and  thereupon  the  bank  which  had  taken  it  in 
pledge  brought  a  writ  of  replevin  to  recover  possession  of  it,  and 
it  was  held  to  be  entitled  to  recover.^  Bakewell,  J.,  delivering 
the  opinion  of  the  court,  said  :  "  A  sale  and  delivery  of  a  chattel, 
so  far  as  a  bond  fide  purchaser  from  the  first  vendee  is  concerned, 
without  any  notice  of  reserved  claims  or  rights  on  the  property, 
ought  to  be  sufficient  for  his  protection.  The  general  rule,  of 
course,  is  that  where  the  vendor  surrenders  to  the  vendee,  or  to 
the  agent  of  the  vendee,  the  possession  of  the  subject-matter  of 
the  sale,  whether  by  a  manual  and  actual,  or  by  a  symbolical  de- 
livery, the  lien  is  defeated,  provided  that  the  vendor  does  entirely 
and  voluntarily  resign  possession  of  the  goods.  But  there  are 
cases  in  which  the  vendor,  as  between  vendor  and  vendee,  may 
retain  a  lien  which  he  will  not  be  entitled  to  as  against  interests 
of  third  persons  which  may  intervene.  By  delivering  the  ware- 
house receipts  to  the  freight  line,  the  vendor  in  the  present  case 
seems  to  have  changed  the  control  and  dominion  of  the  property, 
and  he  put  it  in  the  power  of  the  vendee  to  do  what  he  actually 
did,  that  is,  to  take  the  symbol  of  the  property,  which,  so  far  as 
the  rights  of  third  persons  are  concerned,  was  the  property  itself, 

1  Fourth   Nat.  Bank  v.    St.   Louis     Cotton    Compress    Co.    11    Mo.  App. 
333,  342. 

234 


RIGHTS    OF   A   BONA   FIDE   PLEDGEE.       [§§  307,  308. 

and  to  pledge  it  for  value,  under  such  circumstances  as  -would 
naturally  lead  the- most  vigilant  to  believe  that  the  property  was 
his  own  to  sell  or  pledge ;  we  do  not  see,  therefore,  how  it  can  be 
said  that,  as  to  third  persons,  as  the  plaintiff  in  this  case,  the 
vendor  retained  his  lien." 

307.  An  order  upon  a  warehouseman  accepted  by  him  is  a 
sufficient  delivery  of  goods  in  pledge  to  the  holder  of  the  order.^ 
The  words  "  value  received  "  contained  in  such  order  are  sufficient 
notice  to  the  warehouseman  of  such  lien,  and  a  fraudulent  repi'e- 
sentation  to  him  by  the  owner  of  the  goods,  made  without  the 
pledgee's  knowledge  that  the  lien  of  the  pledge  had  been  extin- 
guished, would  not  affect  his  rights.^ 

308.  Title  by  estoppel.  —  In  the  foregoing  sections  it  has  been 
shown  that  one  who  advances  money  to  another  upon  his  presenta- 
tion of  a  warehouse  receipt,  stands  in  the  position  of  a  purchaser 
for  value  of  the  property  therein  described  ;  and  that  he  can  hold 
the  property  even  as  against  the  real  owner,  who  has  invested 
the  pledgor  with  an  apparent  title,  because  the  pledgee  has  parted 
with  value  on  the  faith  of  that  title.  There  is  another  class  of 
cases  where  the  pledgee  does  not  stand  in  this  position,  but  has 
parted  with  his  money  on  the  promise  of  the  borrower  to  pledge 
property  to  which  he  is  about  to  acquire  title,  and  yet  may  claim 
the  goods  as  against  the  owner  because  the  latter  has  by  his  acts 
or  statements  induced  him  to  repose  upon  the  security  he  has  re- 
ceived, and  to  refrain  from  any  attempt  to  recover  his  money  or 
to  obtain  other  security.  The  owner  is  in  such  cases  estopped  by 
his  acts  or  declarations  from  claiming  the  property,  as  against 
one  whose  position  has  been  altered  by  relying  on  the  evidence 
of  title  with  which  the  owner  invested  the  pledgor  after  the  loan 
was  made. 

This  point  is  illustrated  in  the  following  case.  The  owner  of 
a  quantity  of  cotton,  in  store,  contracted  to  sell  it  upon  the  terms 
that  payment  should  be  made  upon  delivery.  The  purchaser  be- 
fore obtaining  possession  of  the  cotton  borrowed  a  sum  of  money 
of  a  banking  company,  giving  as  security  an  invoice  and  written 

^  Jones  y.  Baldwin,  12  Tick.  (Mass.)         2  Jones  v.  Baldwin,  supra. 
316  ;  Frazer  v.  Ililliard,  2  Strobh.  (S. 
C.)  309. 

235 


§  309.]  PLEDGES   OF   WAREHOUSE  RECEIPTS. 

pledge  of  the  cotton,  and  an  order  upon  the  warehouseman.    The 
warehouseman,  with  the  owner's  consent,  also  delivered  a  ware- 
house receipt  to  the  purchaser.     This  loan  was  on  Satui'day.     On 
Tuesday  following  the  pledgor  failed  without  having  paid  for  the 
cotton.     In  an  action  by  the  original  owner  to  recover  possession 
of  the  cotton  it  was  held,  that  although  upon  the  occasion  of  the 
loan   the  banking  company  acquired   no  title  to  the  cotton  as 
against  the  original  owner,  inasmuch  as  it  parted  with  its  money 
solely  upon  the  engagement  of  the  borrower,  and  upon  his  order, 
and  although  the  company  acquired  no  title  at  the  time  of  the 
delivery  of  the  warehouse  receipt,  because  it  parted  with  no  value 
upon  the  faith  of  it,  yet,  that  upon  receiving  the  receipt,  the  com- 
pany had  a  right  to  repose  upon  it,  as  a  ratification  of  the  prior 
pledge  ;  and  that  having  relied  upon  it,  and  thereby  having  been 
induced  to  refrain  from  any  attempt  to  recover  the  loan  or  to  ob- 
tain security  for  it,  the  original  owner  was  estopped  from  claim- 
ing title.^     The  rule  prevails  in  such  a  case,  that  where  one  of 
two  innocent  persons  must  suffer  by  the  fraud  or  wrongful  act  of 
another,  the  loss  shall  fall  upon  him  by  whose  act  or  neglect  the 
fraud  or  wrongful  act  has  become  possible.     The  original  owner 
gave  credit  to  the  purchaser  and  enabled  him  to  deal  with  the 
cotton  as  his  own,  by  investing  him  with  the  possession  and  the 
indicia  of  ownership.     The  banking  company  risked  their  money 
upon  the  faith  of  the  promise  of  the  purchaser  to  procure  and 
deliver  the  warehouse  receipt  for  the  property ;  but  upon  the  re- 
ceipt of  that  they  had  a  right  to  repose  upon  it  as  evidence  of  the 
purchaser's  title,  and  a  ratification  of  the  prior  pledge  of  the  cot- 
ton for  the  loan  ;  and  the  original  owner,  having  consented  to  the 
issuance  of  the  receipt  by  the  warehouse,  must  be  held  to  have 
assented  to  the  transfer  or  other  use  of  it  by  the  purchaser,  and 
that  faith  should  be  given  to  it  as  to  like  instruments.     Had  the 
company  not  obtained  the  warehouse  receipt,  they  might  have 
resorted  to  some  process  for  the  recovery  of  their  loan  or  other 
indemnity  against  loss.^ 

309.  Two  things  must  concur  to  create  an  estoppel  by 
which  an  owner  may  be  deprived  of  his  property,  by  the 

1  Voorlns  V.  Olmstead,  66  N.  Y.  ^  Voorhis  v.  Olmstead,  supra,  per 
113  ;  affirmino;  S.  C.  3  Hun,  744.  See,  Allen,  J.,  substantially  in  his  language. 
Knights  V.  Wiffen,  L.  R.  5  Q.  B.  660. 

236 


RIGHTS   OF   A   BONA   FIDE   PLEDGEE.  [§  310. 

act  of  a  third  person,  without  his  assent,  under  the  rule  now  con- 
sidered. 1.  The  owner  must  clothe  the  person  assuming  to  dis- 
pose of  the  property  with  the  apparent  title  to,  or  authority  to 
dispose  of  it ;  and,  2.  The  person  alleging  the  estoppel  must 
have  acted  and  parted  with  value  upon  the  faith  of  such  appa- 
rent ownership  or  authority,  so  that  he  will  be  the  loser  if  the 
appearances  to  which  he  trusted  are  not  real.  In  this  respect  it 
does  not  differ  from  other  estoppels  in  pais.  The  elements  of  an 
estoppel  are  thus  stated  by  Judge  Allen,  of  the  Court  of  Appeals 
of  New  York,  in  a  case  which  differed  from  the  principal  case 
stated  in  the  foregoing  section  in  that  the  person  who  assumed  to 
dispose  of  the  property  in  controversy  had  neither  the  possession 
nor  the  right  of  possession  of  the  property,  nor  any  documentary 
evidence  of  title,  or  any  indicia  of  ownership,  or  of  dominion 
over  the  property  of  any  kind.^  In  further  elucidation  of  the 
principle  which  distinguishes  the  one  case  from  the  other.  Judge 
Allen  says,  "  there  is  a  manifest  equity  in  holding  the  owner  of 
property  estopped  from  assfirting  title  as  against  one  who,  for 
value  actually  paid,  has  purchased  it  from  one  having,  by  the 
voluntary  act  or  negligence  of  the  owner,  the  apparent  title  with 
right  of  disposal;  but  with  this  limitation  there  is  no  hardship  in 
holding  to  the  rule  that  the  right  of  property  in  chattels  cannot 
be  transferred  unless  on  the  ground  of  authority  or  title.  Public 
policy  requires  that  purchasers  of  property  should  be  vigilant 
and  cautious  at  least  to  the  extent  of  seeing  that  their  vendors 
have  some  and  the  usual  evidence  of  title,  and  if  they  are  con- 
tent to  rest  upon  their  declarations,  they  may  not  impose  the  loss 
which  is  the  result  of  their  own  incautiousness  or  credulity  on 
another.  The  payment  for,  or  parting  with  value  for,  the  goods 
by  the  purchaser  from  the  fraudulent  vendee,  lies  at  the  founda- 
tion of  the  estoppel ;  for,  if  he  has  parted  with  nothing,  he  can 
lose  nothing  by  the  retaking  of  the  goods  by  the  original  owner, 
and  that  payment  must  be  occasioned  by  the  acts  or  omissions  of 
such  owner.  It  is  the  payment  that  creates  the  estoppel,  and  if 
that  is  not  made  in  reliance  on  the  acts  of  the  owner,  the  latter 
is  not  and  cannot,  in  the  nature  of  things,  be  estopped." 

310.  An  estoppel  arises  against  a  -warehouseman  by  rea- 
son of  a  false  representation  that  the  property  mentioned  in  a 
1  Barnard  v.   Campbell,   55   N.   Y.  456,  4G3. 

237 


§  311.]  PLEDGES   OF   WAREHOUSE   RECEIPTS. 

receipt  is  in  store  when  it  is  not,  so  that  he  will  be  liable  for  ad- 
vances made  upon  the  property  upon  the  faith  of  such  repre- 
sentation.^ 

311.  A  ■warehouseman  is  estopped  as  against  an  assignee 
of  his  receipt,  to  deny  that  he  has  the  identical  goods  men- 
tioned in  the  receipt.  "  The  stipulation  upon  the  face  of  the  re- 
ceipt that  the  articles  mentioned  will  be  delivered  only  upon  the 
return  of  the  receipt,  is  a  contract  upon  which  the  assignee  has  a 
right  to  rely,  upon  the  faith  of  which  he  has  acted,  and  for  the 
breach  of  which  he  has  his  action  against  the  warehouseman.  It 
is,  therefore,  as  between  the  makers  of  the  receipt  and  an  as- 
signee who  has  in  good  faith  taken  it  as  security  for  money  ad- 
vanced, not  simply  a  receipt  subject  to  be  explained  and  contra- 
dicted b}^  parol  proof,  but  a  contract,  and  subject  to  the  rules  ap- 
plicable to  other  contracts.  This  is  not  upon  the  ground  that 
they  are  negotiable  strictly,  but  they  are  sui  generis,  and  stand 
upon  grounds  applicable  to  that  class  of  paper."  ^  Therefore 
where  a  warehouseman  gave  a  receipt  for  forty  bales  of  cotton, 
guaranteeing  a  valuation  of  fifteen  hundred  dollars,  he  then 
having  on  hand  more  than  a  hundred  bales  belonging  to  the 
owner,  it  was  held  that  he  could  not  show  by  parol  evidence  that 
it  was  agreed  at  the  time  the  receipt  was  given  that  he  could 
hold  the  forty  bales  then  in  his  warehouse,  or  any  other  forty 
bales  that  might  afterwards  come  in,  of  the  value  stipulated,  sub- 
ject to  the  receipt.  The  parol  proof  offered  in  this  case  contra- 
dicts the  writing,  and  is  therefore  not  admissible.^  "  The  trans- 
fer of  the  warehouse  receipt,"  say  the  court,  "  had  the  effect  of 
an  actual  delivery  of  the  cotton  to  the  assignee  to  be  held  as  a 
pledge,  and  therefore  the  identical  cotton  should  be  designated, 
and  it  appearing  that  defendants  had  a  large  number  of  bales  on 
hand,  and  the  receipt  not  distinguishing  the  forty  mentioned 
from  the  others,  parol  proof  would  have  been  admissible  for  this 
purpose,  that  is,  to  designate  the  sales  actuall}^  embraced  in  the 
receipt.  But  it  does  not  follow  that  pai'ol  proof  is  therefore  ad- 
missible for  all  purposes.  In  other  words,  the  ambiguity  or  un- 
certainty arising  upon  the  proof  as  to  the  identical  bales   em- 

1  Griswold  V.  Haven,  25  N.  Y.  595.         ^  Stewart  v.  Phoenix  Insurance  Co. 

2  Stewart  v.  Phoenix  Ins.  Co.  9  Lea     supra. 
(Tenn.),  104,  111. 

238 


EIGHTS   OF   A   BONA   FIDE   PLEDGEE.  [§  312. 

braced  in  the  receipt,  may  be  met  or  removed  by  parol  testi. 
mony,  but  this  does  not  open  the  door  for  the  admission  of  parol 
proof  generally,  or  for  any  other  purpose.  We  need  not  inquire 
in  this  case  whether  the  parol  proof  would  have  been  sufficient 
to  designate  the  particular  cotton  ;  it  is  probable  the  defendants 
would  in  any  event  have  been  liable  for  the  value.  The}^  as 
we  have  seen,  would  have  been  estopped  as  against  an  assignee  of 
the  receipts  to  deny  that  they  had  the  cotton,  and  their  inability 
to  show  that  any  particular  bales  were  agreed  upon  to  be  in- 
cluded in  the  receipt,  would  probably  be  no  defence  for  them." 

312.  But  a  warehouseman  is  not  estopped  to  deny  state- 
ments in  his  receipt  which  are  not  within  his  knowledge,  and 
of  the  truth  of  which  he  should  not  be  required  to  have  knowlege. 
Thus  if  he  receives  wheat  upon  storage,  and  describes  it  in  his 
receipt  as  "  No.  2  wheat,"  an  assignee  of  the  receipt  can  only  be 
required  to  deliver  him  the  identical  wheat  received,  though  this 
be  of  a  quality  inferior  to  that  stated  in  the  certificate,  and  though 
the  assignee  received  the  certificate  with  no  knowledge  of  the 
quality  of  the  wheat  except  that  derived  from  this  statement. 
The  warehouseman  is  not  estopped  by  this  statement.^ 

And  so  a  warehouse  receipt  for  a  number  of  barrels  of  mess  pork 
only  binds  the  warehouseman,  in  the  absence  of  fraud  or  wilful 
or  negligent  misrepresentation  on  his  part  in  respect  to  the  de- 
scription of  the  property,  to  deliver  the  same  barrels  and  the  con- 
tents thereof ;  and  although  the  barrels  in  fact  do  not  contain 
mess  pork,  but  salt,  the  warehouseman  is  not  liable  to  a  pledgee 
who  has  advanced  money  relying  upon  the  receipt  as  security.^ 

^  Robson  V.  Swart,  14  Minn.  371.  known  as  barrels  of  mess  pork.    They 

See  §§  248-252.  do  not  signify  tbat  the  barrels  actually 

2  Hale  V.  Milwaukee  Dock  Co.  29  contain  tliat  article  to  the  knowledge 

"VVis.  482,  488.  of  the  warehouseman,  or  that  he   so 

"  The  words  '  mess  pork  '  in  this  states  or  represents  to  any  person  pur- 
receipt,  are  clearly  words  of  descrip-  chasing  the  property  by  taking  deliv- 
tion.  They  are  descriptive  of  the  ery  of  the  receipt.  Neither  do  they 
barrels  received,  and  inserted  for  the  signify  that  he  has  any  actual  knowl- 
purpose  of  identification.  They  sig-  edge  or  information  upon  the  subject, 
nifyno  more  in  that  connection  than  or  that  he  so  states  or  represents,  ex- 
that  the  fifty-four  barrels  received  and  cept  so  far  as  the  barrels  themselves, 
which  are  to  be  delivered  to  the  bearer  by  their  external  appearance,  size, 
on  return  of  the  receipt  and  payment  weight,  marks,  &c.,  indicate  such  to 
of  storage,  are  described,  marked  or  be  their  contents.     lie  receipts  them 

239 


§  313.]  PLEDGES   OF   WAREHOUSE   RECEIPTS. 

313.  A  warehouseman  who  issues  a  receipt  by  mistake 
and  not  intentionally,  is  not  estopped  to  dispute  the  receipt, 
though  this  has  been  taken  from  the  holder  by  a  pledgee  as  se- 
curity for  a  loan,  in  the  belief  that  its  representations  are  true.^ 
The  estoppel  which  creates  responsibility  for  a  false  receipt  arises 
not  from  the  instrument  itself  which  has  not  the  qualities  of 
negotiable  paper,  but  from  the  acts  and  conduct  of  the  party 
issuing  the  receipt  wholly  aside  from  the  instrument  itself.  "  The 
receipt  of  a  warehouseman  or  wharfinger,  and  the  receipt  or  bill 
of  lading  of  a  common  carrier,  are  contracts  of  precisely  the  same 
general  nature  and  effect,  and  should  obviously  be  governed  by 
the  same  rules  and  principles  as  to  the  application  of  the  doctrine 
of  estoppel  or  negotiability,  which,  with  respect  to  such  contracts, 
mean  one  and  the  same  thing.  They  are  or  may  be  said  to  be 
negotiable  or  conclusive,  in  the  hands  of  a  bond  fide  assignee  or 
holder  for  value,  so  far  as  the  party  executing  them,  warehouse- 
man or  carrier,  has  made  or  is  bound  by,  the  representations 
contained  in  them.  They  are  negotiable  or  conclusive  and  valid 
in  the  hands  of  such  a  holder,  because  the  signer,  or  party  by 
whom  they  are  executed,  is  estopped,  or  not  permitted  to  deny 
the  existence  of  the  facts  represented  in  or  by  them,  and  which 
are  presumed  to  have  been  within  his  knowledge  at  the  time  of 
their  execution.  Negotiability  or  quasi  negotiability,  as  it  has 
sometimes  been  more  properly  called,  and  estoppel,  when  spoken 
of  with  respect  to  such  instruments,  mean,  therefore,  one  and  the 
same  thing.  A  bill  of  lading  or  carrier's  receipt  for  goods  to  be 
transported,  and  the  receipt  of  a  warehouseman  or  wharfinger 

upon  the  representation  of  the  bailor,  scribes  them  to  others  in  his  receipt, 
and  their  external  appearance  corre-  A  warehouseman,  like  a  common  car- 
sponding  therewith  as  to  contents,  rier,  is  not  authorized  to  open  and  in- 
He  does  not,  and  is  not  supposed  to  spect  barrels  or  packages  delivered  to 
have  any  actual  knowledge  of  their  him  for  safe  keeping.  A  carrier  can- 
contents,  and  the  language  of  the  re-  not  do  this,  or  insist  on  its  being  done, 
ceipt  is  not  so  to  be  understood.  It  is  before  signing  the  receipt  or  bill  of 
no  warranty  on  his  part  as  to  the  ac-  lading  ;  and  the  usages  and  course  of 
tual  contents,  but  only  that  the  barrels  the  business  with  warehousemen  are 
ai'e  so  represented  and  so  appear  to  the  same."  Per  Dixon,  C.  J. 
him,  to  the  extent  of  his  knowledge  ^  Second  Nat.  Bank  v.  Walbridge, 
or  means  of  information  on  the  sub-  19  Ohio  St.  419;  and  see  Bigelow's 
ject  ;  and  as  they  are  represented  and  Estoppel,  480. 
appear  to  him,  so  he  represents  or  de- 

240 


WAREHOUSEMAN   MUST   HAVE   THE   GOODS  IN   STORE.    [§§  314,  315. 

for   goods  in  store  or  to  be  forwarded,  are   both   contracts  of 
bailment."  1 

IV.   The   WareJwuseman  must  have  the   Goods  in  Store  before 
Issuing  a  Receipt. 

314.  A  statutory  provision  that  a  warehouseman  shall 
not  issue  a  receipt  for  goods  unless  they  are  actually  in  store 
upon  his  premises,  and  in  his  control,  is  intended  to  protect  per- 
sons dealing  in  the  property,  and  should  be  so  construed  as  to 
promote  that  end.  Therefore  if  a  receipt  be  issued  and  pledged 
by  the  holder  when  part  of  the  goods  mentioned  in  it  have  been 
received  in  store,  and  a  part  had  not  been  so  received,  the  receipt 
is  not  wholly  void  but  void  only  as  to  the  part  not  in  store  at 
the  time  the  receipt  was  taken  by  the  pledgee.  If  a  warehouse- 
man gives  such  a  receipt  to  one  who  had  fraudulently  purchased 
the  goods,  and  he  transfers  it  to  another  who  makes  advances 
on  the  strength  of  it  without  notice  of  any  fact  calculated  to 
awaken  suspicion,  the  pledgee  is  entitled  to  hold  so  much  of  the 
property  as  was  in  the  warehouse  at  the  time  he  made  the  ad- 
vances and  took  the  receipt,  but  no  more.^ 

315.  A  warehouseman's  receipts  for  goods  not  in  his 
warehouse  at  the  time  of  giving  the  receipt,  under  a  statute 
which  provides  that  such  a  receipt  shall  not  be  issued  until  the 
goods  have  been  received  into  possession  and  store,  does  not  pass 
any  right  or  title  to  the  holder  of  the  receipt  to  the  prejudice  of 
innocent  third  persons.  It  would  seem  that  if  the  goods  are  af- 
terwards received  into  the  warehouse  the  receipt  so  issued  would 
be  ratified  and  made  good  from  that  time ;  though  the  interven- 
ing rights  of  innocent  third  persons  would  not  be  affected.  But 
it  is  clear  that  if  the  warehouseman  thereupon  executes  a  new 
receipt  which  is  given  in  pledge  to  secure  the  liability  for  which 
the  original  receipt  was  given,  the  new  receipt  takes  effect  at  the 
time  of  its  execution  and  delivery ;  but  does  not  as  against  in- 
tervening rights  relate  back  to  the  time  of  giving  the  original 
receipt,  though  its  date  be  made  to  correspond  with  that.^     The 

1  Hale  V.  Milwaukee  Dock  Co.,  29         s  Cockran  v.  Rii)y,  13  Bush  (Ky.), 
Wis.  482,  486,  per  Dixon,  C.  J.  495. 

"^  McCombie  v.  Spader,  1   Hun  (N. 
Y.),  193;  S.  C.  3  Thomp.  &  C.  690. 

10  211 


§§  316,  317.]      PLEDGES   OF   WAREHOUSE   RECEIPTS. 

validity  of  the  new  receipt  is  not  affected  in  the  hands  of  one  who 
acted  in  good  faith  in  taking  the  original  receipt,  by  the  fact  that 
in  giving  the  original  receipt  for  goods  not  then  in  his  warehouse 
and  under  his  control,  the  warehouseman  violated  the  statute  and 
incurred  the  penalty  it  imposed.  The  penalty  was  intended  for 
the  security  of  innocent  third  persons,  and  the  punishment  will 
not  be  extended  to  them  by  declaring  the  contract  void,  although 
prohibited. 1 

316.  A  -warehouseman  is  not  bound  by  a  receipt  issued 
by  his  agent  acting  without  authority.^  One  dealing  with  an 
agent  having  limited  powers,  is  bound  to  inquire  as  to  the  extent 
of  these  powers  and  to  take  the  risk  upon  himself.^  "  If,  indeed, 
any  servant  could  bind  his  master  by  issuing  a  receipt  for  goods 
committed  to  his  charge,  the  condition  of  things  would  be  suffi- 
ciently serious,  and  the  statute  would  be  pregnant  with  more 
harm  than  good.  In  this  very  case  we  have  an  example  of  what 
would  result  from  such  a  construction  of  the  act.  A  crafty  agent 
obtains  a  receipt  from  a  servant,  intended  only  as  a  memorandum, 
pledges  it  to  an  innocent  party,  then  obtains  another  receipt  from 
the  owners  of  the  wharf,  and  passes  that  to  a  like  innocent  party, 
and  thereby  these  wharfingers  are  liable  for  double  the  value  of 
the  property.  But  we  may  easily  suppose  a  case  in  which  a  dis- 
honest clerk  or  other  employee,  in  connection  with  one  or  more 
accomplices,  might  in  a  month's  time  bring  to  ruin  the  wealthiest 
warehouseman  in  this  city.  But  this  will  not  do;  such  results 
were  never  intended,  by  the  makers  of  the  statute,  and  a  con- 
struction such  as  this  is  warranted  neither  by  the  letter  nor  spirit 
of  that  statute."  * 

317.  A  warehouse  receipt  for  a  part  of  certain  goods 
stored  in  bulk  passes  no  title  until  such  goods  are  separated, 
set  apart,  or  marked,  so  as  to  distinguish  them  from  the  general 
mass,  unless  the  receipt  provides  the  means  of  making  such 
separation.^     This   general   doctrine  of   the  common  law  is   in 

1  Cochran  v.  Ripy,  13  Bush  (Ky.)'  ®  People's  Bank  v.  Gayley,  92  Pa. 
495.  St.  518. 

2  For  the  like  rule  in  regard  to  *  Per  Gordon,  J.,  in  People's  Bank 
carriers,  see  §§  245-254.  v.  Gayley,  supra. 

^  Ferguson   v.   Northern   Bank  of 
242  Ky.  14    Bush    (Ky.),    555.      In    this 


WAREHOUSEMAN   MUST   HAVE   THE   GOODS   IN   STORE.       [§  318. 

some  states  embodied  in  tbe  statutes  governing  warehouse  re- 
ceipts; but  a  special  exception  is  in  some  states  made  for  the 
case  of  grain  stored  in  bulk.  In  other  states  the  courts  have 
recognized  and  enforced  a  general  usage  to  store  in  bulk  grain  of 
like  quality  belonging  to  different  persons  who  become  owners  in 
common  of  the  whole  mass,  each  being  entitled  to  such  a  pro- 
portion as  the  quantity  placed  in  stoi'e  by  hira  bears  to  the  whole 
mass.  This  usage  has  necessarily  followed  the  introduction  and 
use  of  elevators  for  the  storage  of  grain  ;  and  the  courts  have 
modified  the  common  law  doctrine  to  meet  the  necessities  of  this 
innovation.^  TJius,  in  a  recent  case  in  Massachusetts,  a  pledgee 
of  a  bill  of  lading  representing  a  shipment  of  grain,  brought 
suit  against  a  railroad  company  for  a  conversion  of  the  grain, 
which  the  company  had  stored  in  its  elevator,  where  it  was  mixed 
with  other  grain  of  a  like  quality,  and  the  company,  having 
wrongfully  delivered  the  quantity  of  grain  called  for  by  the  bill 
of  lading  to  the  consignee,  contended  that,  because  it  was  im- 
possible to  deliver  the  identical  grain  received,  it  was  not  liable 
in  an  action  of  tort,  in  the  nature  of  trover,  for  its  conversion. 
But  it  was  held  that  this  objection  could  not  be  sustained.  Chief 
Justice  Morton,  in  delivering  the  judgment  of  the  court,  said:^ 
"  When  the  grain  was  put  in  the  elevator,  the  plaintiff  and  the 
other  owners  of  grain  stored  therein  became  tenants  in  common 
in  proportion  to  their  respective  interests.  And  a  tenant  in 
common  of  personal  property  may  maintain  trover  against  a 
stranger  who  converts  the  property  or  his  interest  in  it.  At 
the  time  of  the  delivery  to  the  consignee,  the  plaintiff  was  the 
owner  of  the  grain  entitled  to  the  immediate  possession.  Such 
a  delivery  was  a  separation  of  their  grain,  and  a  misappropria- 
tion of  it,  and  was  a  conversion  for  which  the  appropriate  remedy 
is  an  action  of  tort,  in  the  nature  of  trover." 

318.  But    this    exception    to    the    general   rule    embraces 
only  such  property  as  grain,  which   is  customarily  stored  in 

state  it  is  provided   by  statute   that  ^  Gushing      v.     Breed,    14     Allen 

the  receipt  shall  set  forth  the  quality,  (Mass.),     376;     Keeler   v.    Goodwin, 

quantity,  kind,  and  description  of  the  111   JNIass.  490;    Forbes  v.  Fitehburg 

property,  which  shall  be  designated  by  K.  K.   Co.   133  Mass.  154;    Dole    v. 

some  mark.     But  it  was  declared  by  Ohnstead,  36  111.  150;  and  see  Green- 

the  court,  in  the  case  cited,  that  this  leaf  v.  Dows,  3  McCrary,  27. 

enactment   only  followed    the    estab-  "  po,.ijes  „  j'itchburg  K.  11.  Co.  sup-a. 

lished  rule  of  the  common  law.  243 


§§  319,  320.]      PLEDGES   OF   WAREHOUSE  RECEIPTS. 

bulk,  or  other  goods,  the  constituent  particles  of  which  are  alike, 
and  not  distinguishable.  It  does  not  extend  to  such  property  as 
flour  in  barrels,  although  all  the  flour  in  store  be  of  the  same 
brand,  of  the  same  quality,  and  of  uniform  value  ;  ^  or  to  such 
property  as  hams;^  or  bales  of  cotton.^ 

319.  If  a  warehouseman  issues  receipts  for  property  in 
bulk,  such  as  wheat,  to  several  depositors,  for  a  greater 
quantity  than  he  has  in  store,  or  if,  having  received  the  wheat, 
he  fraudulently  disposes  of  a  part  of  it,  so  that  there  is  not 
enough  to  satisfy  all  the  receipt-holders,  they  are  entitled  to 
share  in  what  remains,  according  to  the  equitable  interest  of 
each,  to  be  ascertained  by  an  accounting.*  If  a  warehouseman 
has  in  store  the  grain  of  various  persons,  for  which  he  has  given 
receipts,  and  also  grain  of  his  own,  the  whole  being  stored  in 
one  common  bulk,  and  he  transfers  all  the  grain  to  secure  a 
creditor  of  his  own,  to  be  held  subject  to  the  rights  of  the  differ- 
ent owners,  the  assignee  will  hold  the  property  as  trustee  for  the 
benefit  of  all  parties  in  interest.  He  will  be  bound  to  deliver  to 
the  receipt-holders  all  the  grain  which  belonged  to  them,  but  he 
will  have  the  right  to  retain  and  apply  to  his  own  debt  whatever 
grain  there  was  in  store  at  the  time  of  the  assignment  belonging 
to  the  warehouseman.^ 

320.  A  warehouseman  does  not,  by  issuing  his  receipt, 
become  a  guarantor  of  the  title  of  the  property  mentioned 
therein  to  the  holder  of  the  receipt,  but  merely  a  custodian  of 
it.  His  duty  is  performed  when  he  gets  actual  possession  of  the 
property  before  issuing  his  receipt,  and  by  delivering  possession 
upon  demand  to  the  lawful  holder  of  the  receipt.^ 

But,  if  a  warehouseman  negligently  issues  two  receipts  for  the 
same  property,  and  both  are  taken  in  good  faith  in  pledge,  he 
is  liable  upon  both.  Thus,  a  warehouseman  having  issued  a 
receipt  for  a  quantity  of  corn,  the  holder  of  the  receipt  j^ledged 
it  to  a  bank,  and  then  directed  the  warehouseman  to  ship  the 

1  Gardiner  v.  Suydam,  7  N.  Y.  357.         *  Dows  v.  Ekstrone,  3  Fed.  Rep.  19; 

2  Ferguson    v.    Northern   Bank  of     Dole  v.  Olnistead,  36  111.  150. 
Ky.  14  Bush  (Ky.),  555.  ^  Dole  v.  Olmstead,  ,si</>/-a. 

8  Stewart  v.  PhcEuix  Ins.  Co.  9  Lea  ^  Insurance  Co.  v.  Kiger,  103  U.  S. 
(Tenn.),  104,  110.  352. 

244 


OWNER   OF   GOODS   CANNOT   GIVE   A   VALID   RECEIPT.       [§  321. 

corn,  which  he  did,  taking  a  receipt  from  the  carrier,  and  deliver- 
ing it  to  the  person  who  took  the  former  receipt,  who  thereupon 
obtained  a  bill  of  lading  from  the  carrier,  and  attaching  this  to 
a  draft,  obtained  a  discount  of  it  from  the  bank  which  received 
the  first  receipt  in  pledge.  The  bank  had  no  notice  that  the 
receipt  and  bill  of  lading  were  for  the  same  corn.  It  was  held 
that  the  bank  was  entitled  to  recover  of  the  warehouseman  the 
value  of  the  corn.^ 

V.   TJie  Owner  of  Croods  cannot  give  a  Valid  Receipt  for  them  as 

Warehouseman. 

321.  The  owner  of  goods  cannot  give  a  warehouse  receipt 
for  them,  which  will  be  an  effectual  pledge  of  them,  as  against 
an  attaching  creditor,  unless  it  be  accompanied  by  an  actual  or 
symbolical  delivery  of  the  goods.^  A  commission  merchant  on 
applying  to  a  banker  for  a  discount  of  his  promissory  note,  at- 
tached thereto,  as  collateral,  a  receipt  by  him,  as  follows  :  "  Re- 
ceived in  store,  for  account  of  P.  &  S.  (the  bankers)  or  their 
order,  the  following  named  property  as  security  to  my  note  given 
this  day."  The  goods  remained  in  the  owner's  store,  and  he  con- 
tinued to  keep  it  open  and  transact  business  as  he  had  done  be- 
fore the  pledge,  and  the  bankers  did  not  even  look  at  the  goods. 
In  a  suit  by  the  bankers  to  recover  the  property  from  a  sheriff, 
who  had  attached  the  property  in  favor  of  a  creditor  of  the  mer- 
chant, it  was  urged  that  the  receipt  showed  upon  its  face  that  the 
merchant  received  the  goods  from  the  plaintiffs,  and  that  he  held 
them  thereafter  in  a  new  capacity,  as  agent  and  factor  for  the 
pledgees.  To  this  suggestion  the  Supreme  Court  of  New  York 
reply  :  ^  "So  far  as  creditors  are  concerned,  if  this  be  a  pledge, 
the  writing  is  to  them  of  no  moment  whatever;  it  is  only  at  the 
furthest  evidence  of  the  pledge,  which  would  have  been  just  as 
valid  if  it  had  been  left  in  parol.  The  true  and  only  essential 
inquiry  in  this  case  is,  has  there  been  in  fact  a  delivery  ;  none 
accompanied  the  transaction  ;  and  this  disposes  of  all  the  argu- 
ment made  upon  the  suggestion  that  this  paper  on  its  face 
amounts  to  a  warehouse  receipt ;  for  the  plaintiffs  cannot  by  any 

1  Union   Savings  As?o,  i'.  St.  Louis     Ohio   St.   2.'34  ;  Geddos  v.   Bennett,  6 
Grain  Elevator  Co.  11  Mo.  App.  59G.        La.  Ann.  51 G. 

2  Thorne    v.  First   Nat.   Bank,    3  7         8  Par.shall  v.  Eggart,  52  Barb.  (N. 

Y.)  3G7,  370. 

245 


§  322.]  PLEDGES   OF  WAREHOUSE   RECEIPTS. 

fiction  avoid  meeting  the  undisputed  fact  that  the  subject  of  the 
pledge  was  not  delivered  to  them  until  the  debt  had  matured, 
and  after  the  claim  of  the  attaching  creditor  had  become  prior 
and  superior."  ^ 

These  views  of  the  court  upon  the  effect  of  the  receipt  are 
stated  merely  to. show  the  arguments  that  may  be  used  upon 
the  construction  of  such  a  paper ;  for  whatever  weight  these 
views  might  have  in  themselves,  their  authority  is  overcome  by 
the  declaration  of  the  Commission  of  Appeal  in  deciding  this 
case,  that  the  receipt  might  be  considered  as  showing  conclu- 
sively against  pledgor,  that  the  property  was  delivered  by  him 
to  the  pledgee,  and  by  the  latter  redelivered  to  him  to  be  held  as 
security  for  the  pledgee,  according  to  the  terms  of  the  receipt.^ 
The  case  was  however  decided  upon  another  ground.^ 

And  so  a  warehouse  receipt  issued  by  a  warehouseman  upon 
his  own  grain  as  collateral  security,  is  invalid  as  against  a  prior 
purchaser  who  holds  a  valid  receipt  therefor.*  Even  a  delivery  of 
the  keys  of  the  warehouse  to  the  holder  of  the  invalid  receipt 
does  not  amount  to  a  valid  delivery  of  the  grain  to  him  as 
against  such  prior  purchaser. 

322.  In  Nebraska,^  however,  it  is  provided  by  statute  that 
an}^  packer  of  pork  or  beef,  or  au}^  manufacturer  of  distilled  spirits, 
having  a  warehouse  for  the  storage  of  his  own  product ;  and  any 
keeper  of  an  elevator  where  he  stores  his  own  grain,  may  issue 
receipts  for  his  own  meats,  spirits,  or  grain,  which  he  actually 
has  so  stored,  in  the  usual  form  of  warehouse  receipts,  which 
shall  have  the  same  force  and  effect  as  receipts  issued  by  the 
keeper  of  a  public  warehouse,  to  parties  having  property  so  stored 
therein,  which  receipts  shall  be  negotiable  by  indorsement,  and 
entitle  the  bond  fide  holder  thereof  advancing  money  upon  the 
credit  of  the  same  to  a  lien  upon  the  property  so  stored  and  de- 
scribed therein,  for  the  money  so  advanced,  as  to  all  subsequent 
purchasers  and  creditors  of  any  person  interested  therein,  from 
the  issue  of  such  receipts  and  the  advances  of  such  money,  pro- 

1  The  decision  upon  this  point  of        ^  See  §  39. 

delivery  was   reversed   upon   appeal  ;  ^  Sexton  v.  Graham,  53  Iowa,  181. 

64  N.  Y.  18.  5  Laws  1879,  p.  73,  §  1;  Compiled 

2  Parshall  v.  Eggert,  54  N.  Y.  18,  Stats.  1881,  c.  92  §  13. 
23. 

246 


OWNER   OF  GOODS   CANNOT   GIVE  A  VALID   RECEIPT.     [§§  323,  324. 

vided  the  said  receipts,  or  a  copy  thereof  verified  by  the  oath  of 
the  holder  of  the  same,  be  recorded  in  the  office  of  the  county 
clerk  of  the  county  in  which  such  warehouse  or  elevator  may  be. 

323.  In  Kentucky,!  a  warehouseman  is  impliedly  author- 
ized by  statute  to  give  receipts  or  vouchers  for  his  own  goods, 
when  stored  and  under  his  control  and  kept  in  his  own  ware- 
house or  a  warehouse  kept  by  him.  If  the  goods  are  at  the  time 
in  his  possession,  his  receipt  vests  in  the  holder  a  right  to  the 
propert}^,  and  no  one  without  his  written  consent  or  transfer, 
and  the  production  of  the  receipt  can  gain  any  title  thereto. ^ 
This  statute  also  requires  that  the  receipt  should  show  upon  its 
face  any  lien  or  incumbrance  that  might  exist  upon  the  property 
in  favor  of  the  warehouseman.  Therefore  if  a  warehouseman 
himself  sells  goods  upon  credit  and  gives  a  receipt  for  the  same, 
to  be  delivered  on  return  of  the  receipt  and  payment  of  the  stor- 
age and  charges,  and  the  purchaser  indorses  the  receipt  to  an  in- 
nocent holder  as  collateral  to  secure  a  loan  obtained  on  the  faith 
of  the  receipt,  the  latter  has  a  right  to  have  the  property  applied 
in  the  first  place  to  the  payment  of  the  loan  ;  and  it  is  imma- 
terial that  the  purchaser  of  the  property  acted  fraudulently  in 
the  transaction.^  A  provision  of  the  statute  forbidding  the  issu- 
ing of  a  second  receipt  without  the  written  consent  of  the  holder 
of  the  prior  receipt,  is  intended  to  protect  the  holder  of  the  second 
receipt,  and  does  not  allow  the  holder  of  the  first  receipt  to  re- 
pudiate his  oral  agreement  that  the  holder  of  the  property  might 
sell  it.  He  is  as  much  estopped  to  deny  the  authority  to  sell,  and 
the  title  of  the  innocent  purchaser,  as  he  would  be  if  he  had  stood 
by  in  person,  and  acquiesced  in  the  sale  without  asserting  claim 
to  the  property.* 

324,  A  receipt  signed  by  the  agpnt  or  servant  of  the 
owner  has  no  more  effect  than  the  owner's  own  receipt. 
If  such  a  receipt  be  transferred  by  the  owner  as  collateral 
security  for  a  loan,  and  the  property  remains  upon  the  owner's 
premises,  it  affords  no  protection  to  the  creditor,  but  the  property 

^  Act  of  IMarch  6,  1869.  8  Grecnbaiim  v.  Megibben,  10  Bush 

2  Cochran  v.  Ripy,  13  Bush  (Ky.),     (Ky.),  419;  and  see  Cochran  i'.  Ripy, 

495;   Ferguson   v.    Northern  Bank  of     13  lb.  495. 

Ky.  14  Bush  (Ky.),  555.  *  Fanner  v.  Gregory,  78  Ky.  475. 

247 


§  325.]  PLEDGES   OF   WAREHOUSE  RECEIPTS. 

may  be  taken  in  execution  by  the  creditors  of  such  owner.  As 
between  the  owner  and  his  agent  such  a  receipt  is  a  nullity,  and 
as  between  the  owner  and  his  pledgee  it  is  wholly  ineffectual  as  a 
pledge.^ 

325.  An  instrument  in  the  form  of  a  warehouse  receipt 
executed  by  a  debtor  to  his  creditor,  on  the  debtor's  own 
property,  is  not  a  warehouse  receipt.^  A  receipt  issued  by  a 
private  warehouseman  for  his  own  property,  in  his  own  ware- 
house, and  delivered  by  him  as  collateral  security  for  his  own 
debt,  vests  no  title  to  the  property  in  the  holder  as  against  other 
creditors,  and  in  bankruptcy  proceedings  against  the  debtor  the 
holder  of  such  a  receipt  has  no  preference.  Such  a  receipt  con- 
fers no  possession,  actual  or  constructive,  which  is  essential  to  a 
pledge.^  Neither  does  it  amount  to  a  mortgage  of  the  property, 
because  no  possession  is  conferred  upon  the  mortgagee,  nor  does 
it,  in  fact,  amount  to  a  written  mortgage.  Even  if  it  did  amount 
to  a  mortgage,  it  would  not  be  valid  without  record,  according 
to  the  statute.  The  receipt  might  constitute  a  valid  contract 
between  the  parties,  but  it  amounts  to  nothing  as  against  the 
creditoi's  of  the  person  who  makes  it.* 

A  private  wareliouseman  having  issued  receipts  for  his  own 
property,  in  his  own  warehouse,  and  delivered  them  as  security 
for  his  indebtedness,  it  was  held  that  the  person  taking  such  re- 
ceipts acquired  no  title  to  the  property  described  as  against  other 
creditors,  and  in  bankruptcy  proceedings  was  not  entitled  to  any 
preference.  It  did  not  appear  that  the  bankrupt  used  his  ware- 
house as  a  warehouse  under  the  statute,  in  any  other  way  than 
for  the  purpose  specially  intended  by  the  bankrupt.  It  did  not 
appear  that  the  property  of  any  other  person  than  that  of  the 
bankrupt  was  stored  in  the  warehouse'.  The  case  was  one,  there- 
fore, where  the  bankrupt,  having  purchased  and  taken  possession 

1  Yenni  v.  McNamee,  45  IN".  Y.  614.  to  transfer  the  title  of  the  property  de- 

2  Thorne  v.  First  Nat.  Bank,  3  7  scribed,  as  between  the  borrower  and 
Ohio  St.  254.  the  bank,  and  such  transfer,  being  col- 

3  Farmers'  &  Mechanics'  Nat.  Bank  lateral  to  the  payment  of  a  debt,  could 
V.  Lang,  87  N.  Y.  209,  215.    Finch,  J.,  operate  only  as  a  mortgage." 

said  :   "  There  was,   therefore,  never         *  Adams  v.  Merchants'  Nat.  Bank 

any  valid  pledge  by  the  borrower,  nor  (C.  C.  D.  Ind.  1880), 2  Fed.  Rep.  174; 

any  actual  -warehouse  receipt.     What  S.  C.9  Biss.  396;  Yenni  i'.  McNamee, 

was  so  called  operated  in  each  instance  45  N.  Y.  614. 

248 


OWNER   OF   GOODS   CANNOT    GIVE   A   VALID   RECEIPT.      [§  326. 

of  property,  stored  it  in  his  warehouse,  for  which  a  permit  under 
the  statute  had  been  obtained,  and  issued  receipts  for  the  same, 
and  transferred  them,  through  a  third  person  to  whom  they  were 
issued,  to  the  bank  as  collateral  security  for  the  loan  made. 
There  was  consequently  no  pledge,  for  there  was  no  delivery  of 
possession.  Neither  was  there  any  valid  mortgage  of  the  prop- 
erty, because  there  was  no  possession  in  the  mortgagee,  nor  was 
there,  in  fact,  any  written  mortgage.^ 

It  was  claimed  that  the  assignee  took  no  greater  rights  than 
the  bankrupt  had,  and  that  this  contract,  being  valid  between  the 
parties,  was  valid  against  the  assignee.  But  the  court  declared 
that  the  rule  did  not  apply  to  cases  of  this  kind  ;  but  that  the 
assignee  had  the  right  of  a  judgment  creditor,  where  the  mort- 
gage or  pledge  is  invalid  in  consequence  of  wanting  any  element 
requisite  under  the  law  or  under  the  statute.^ 

326.  There  is  a  distinction  between  cases  of  sales  and 
cases  of  pledges,  as  regards  the  effect  of  the  delivery  of  receipts 
for  the  property.  When  a  vendor  delivers  to  the  purchaser  his 
own  receipt  for  the  property  sold  the  vendor  may  be  regarded  as 
bailee  of  the  property  for  the  purchaser,  so  that  the  title  majr  be 
regarded  as  in  the  purchaser  by  virtue  of  the  receipt.  When 
the  receipt  is  given  by  the  owner  of  the  goods  merely  as  collateral 
security,  and  not  for  the  purpose  of  carrying  out  an  absolute 
sale,  it  comes  within  the  principle  of  a  mortgage  of  chattels, 
which  must,  to  be  valid  as  against  third  persons,  be  made  and 
recorded  in  compliance  with  statutory  law.  Yet,  as  between  the 
parties  themselves,  such  a  receipt  is  a  lawful  contract,  and  effects 
a  valid  transfer  of  the  property  according  to  its  terms.^     Thus  a 

1  Adams  v.  Merchants'  Nat.  Bank  St.  254;  Iloyt  v.  Hartford  F.  Ins.  Co. 

(C.  CD.  of  Ind.  1880),  2  Fed.  Rep.  26   Hun    (N.  Y.),   416  ;    Farmers'   & 

174;  (S.  C  9  Biss.  396;  Gibson  v.  Stev-  Mechanics'   Nat.   Bank    v.  Lang,    87 

ens,  8  How.  384;  Gibson  r.  Chillicothe  N.  Y.  209;    Yenni  v.   McNamee,    45 

Bank,  11  Ohio  St.  311;  Yenni  v.  Mc-  N.  Y.  614;  Adams  v.  Merchants' Nat. 

Namee,  45  N.  Y.  614;  Shepardson  v.  Bank,  2  Fed.  Rep.  174,  178.     In  the 

Green,  21  Wis.  539.  hitter  case,  the  cases  of  Shepardson  v. 

^  Adams  v.  Merchants'  Nat.  Bank,  Green,  21  Wis.  539,   and   Shepardson 

supra.  V.  Gary,  29  Wis.  34,  are  referred  to, 

*  Gibson   v.  Stevens,   8  How.   384;  and  the  hmguage  of  the  court  in  the 

Gibson  V.  Chillicothe  Bank,  11   Ohio  last    named    case    criticised    as    not 

St.  311;  the  latter  distinguished  from  consistently  following  the  distinction 

Thorne  v.  First  Nat.  Bank,  37  Ohio  above  taken. 

249 


§  326.]  PLEDGES   OF  WAREHOUSE  RECEIPTS. 

pledgee  holding  such  a  receipt  is  entitled,  as  having  the  title  to 
the  property  designated,  to  recover  upon  an  insurance  policy  upon 
such  property  assigned  to  hira  for  further  security .^ 

2  Hoyt  V.  Hartford  F.  Ins.  Co.  26  Hun  (N.  Y.),  416. 
250 


CHAPTER   VIII. 

PLEDGES    BY   FACTORS. 

I.  Pledges  by  factors  at  common  law,  327-  I  II.  Pledges  by  factors   under  the  Factors' 
332.     "  I  Acts,  333-353. 

I.  Pledges  hy  Factors  at  Common  Law. 

327.  By  the  common  law  a  factor  or  agent  had  no  power 
to  pledge  goods  which  his  principal  had  intrusted  to  his  pos- 
session, although  the  factor  or  agent  had  made  advances  to  his 
principal  upon  the  goods,  and  had  a  lien  thereon  for  the  ad- 
vances.^ Although  the  principal  had  drawn  upon  his  factor  for 
the  value  of  the  property  consigned,  he  was  not  authorized  to 
pledge  the  goods  even  to  raise  funds  to  meet  the  bills.'-^  The 
rights  of  the  principal  and  factor  whenever  this  relation  ex- 
isted, and  whatever  might  be  the  circumstances,  were  regarded  as 
depending  on  the  law  merchant,  which  was  part  of  common 
law.  By  this  law  a  factor  was  but  the  attorne}'  of  his  principal, 
and  he  was  bound  to  pursue  the  powers  delegated,  and  could  not 
go  beyond  them.^  An  agent  to  sell  goods,  though  being  the  ap- 
parent owner  by  reason  of  having  possession  by  permission  of  the 
principal,  could  not  pledge  them  for  his  own  debt.     No  usage  of 

1  Patterson  v.  Tasb,  2   Str.   1178;  Fed.  Rep.   569;    Holton  v.  Smith,   7 

Daubicrny    v.   Duval,    5    T.   R.    604 ;  N,   II.  446  ;    Campbell   v.   Reeves,    3 

Martini    v.    Coles,    1    M.   &    S.   140  ;  Head.  (Tenn.)  226  ;   Merchants'  Nat. 

Queiroz  v.  Trueman,   3  B.  &  C.  342,  Bank  v.  Trenholm,  12  Heisk.  (Tenn.) 

348  ;  De  Boiichout  ?;.  Goldsniid,  5  Ves.  520;    Van    Amrin^jje    v.    Peabody,    1 

210;  Pickering  v.  Busk,  15  East.  38,  Mason,    440  ;    Hoffman   v.    Noble,    6 

43;  Peetr.  Baxter,  1  Stark.  4  72;  War-  Met.    (IMass.)    68,    74;    Newbold    v. 

ner  v.   Martin,    11  How.   209  ;    First  Wri<rht,  4  Rawle  (Pa.),  195. 

Nat.  Bank  w.  Nelson,  38  Ga.  391;  Bott  "  Graham  v.  Dyster,  2   Stark.  21  ? 

V.  McCoy,  20  Ala.  578;  McCreary  v.  S.  C.  6  M.  &  S.  1,  14. 

Gaines,  55  Te.x.  485;    S.  C.  13  Rep.  «  Kinder   v.    Shaw,    2   Mass.   898; 

797;  Benny  y.  Rhodes,   18  Mo.  147;  Odiorne    v.    Maxcy,    13    Mass.   178; 

Benny  v.  Petrram,  lb.  191  ;  Steiger  v.  Scott  v.  Owen,  Wils.  400,  405. 
TLird  Nat.  Bank  (C.  C.  :Mo.  1881),  6 

251 


§  328.]  PLEDGES   BY   FACTORS. 

trade  allowed  this.  The  agency  was  to  sell  only.  A  creditor  to 
whom  a  factor  offered  goods  in  pledge  was  bound  at  his  peril  to 
inquire  and  know  the  extent  of  the  factor's  title  to  the  goods,  or 
of  his  authority  to  deal  with  them. 

The  cases  which  in  England  established  the  doctrine  that  a 
factor  could  not  effectually  pledge  for  his  own  debts  goods  placed 
in  his  hands  for  sale,  although  he  had  made  advances  upon  them, 
proceeded  upon  the  ground  that  the  interest  of  the  factor  was 
merely  a  lien  and  not  a  pledge  ;  and  inasmuch  as  a  lien  is  a  per- 
sonal right  of  detention,  which  cannot  be  assigned  to  another,  it 
followed  that  a  factor  had  no  interest  of  his  own  which  he  could 
pledge  ;  and  as  he  could  not  pledge  his  principal's  interest  with- 
out direct  authority  to  do  so,  he  could  transfer  no  interest  what- 
ever by  delivery  of  his  principal's  goods  in  pledge.  Where 
money  has  been  advanced  on  goods  consigned  for  sale,  the  char- 
acter of  the  transaction  is  that  of  a  lien,  and  not  of  a  deposit,  by 
way  of  pledge.^ 

328,  A  factor  or  agent  with  power  to  sell  only  has  at 
common  law  no  power  to  pledge  his  principal's  goods  for  his 
own  debt.  A  power  to  sell,  such  as  is  possessed  by  a  factor  ap- 
pointed for  that  purpose,  can  only  be  exercised  by  way  of  sale.^ 
The  fact  that  the  goods  were  invoiced  to  the  person  making  the 
pledge,  as  purchaser,  and  not  as  factor,  does  not  estop  the  owner 
from  claiming  tlie  goods  as  against  the  pledgee,  in  case  the 
pledgee  had  no  knowledge  of  this  fact  at  the  time  of  the  pledge, 
and  hence  could  not  claim  that  he  was  misled.^  "  At  com- 
mon law,  a  person  in  possession  of  goods  could  not  confer  on 
another,  either  by  sale  or  by  pledge,  any  better  title  to  the 
goods  than  he  himself  had.  To  this  general  rule  there  was  an 
exception  of  sales  in  market  overt,  and  an  apparent  exception 

1  Smart  v.  Sandars,  3  C.  B.  380,  Creary  v.  Gaines,  55  Tex.  485 ;  S.  C. 
400,  401  ;  S.  C.  5  C.  B.  895,  917,  13  Rep.  797. 

2  2  Kent,  Com.  625;  Patterson  v.  In  Leet  v.  Wadsworth,  5  Cal.  404,- 
Tash,  2  Strange,  1 1 78 ;  Martini  v.  however,  where  the  factor  had  pur- 
Coles,  1  M.  &  S.  146  ;  Warner  v.  chased  goods  in  his  own  natiie,  had 
Martin,  11  How,  209;  Rodriguez  v.  stored  them  in  his  own  name,  and  had 
Heffernan,  5  Johns.  (N".  Y.)  Ch,  429  ;  paid  the  storage  for  eighteen  months, 
Gray  v.  Agnew,  95  III.  315;  First  it  was  held  that  he  had  such  apparent 
Nat.  Bank  v.  Nelson,  38  Ga.  391.  ownership  of   the  goods  that  he   was 

*  Gray  v.  Agnew,  95  III.  315;  Mc-    entitled  to  pledge  them, 

252 


PLEDGES   BY   FACTORS   AT   COMMON   LAW.  [§  329. 

where  the  person  in  possession  had  a  title  defeasible  on  account  of 
fraud.  But  the  general  rule  was  that,  to  make  either  a  sale  or  a 
pledge  valid  against  the  owner  of  the  goods  sold  or  pledged,  it 
must  be  shown  that  the  seller  or  pledgor  had  authority  to  sell  or 
pledge.  If  the  owner  of  the  goods  had  so  acted  as  to  clothe  the 
seller  or  pledgor  with  apparent  authority  to  sell  or  pledge,  he  was 
at  common  law  precluded,  as  against  those  who  were  induced  bond 
fide  to  act  on  the  faith  of  that  apparent  authority,  from  denying 
that  he  had  given  such  an  authority,  and  the  result  as  to  them 
was  the  same  as  if  he  had  really  given  it.  But  there  was  no  such 
preclusion  as  against  those  who  had  notice  that  the  real  authority 
was  limited.  And  the  possession  of  bills  of  lading  or  other  doc- 
uments of  title  to  goods  did  not  at  common  law  confer  on  the 
holder  of  them  any  greater  power  than  the  possession  of  the  goods 
themselves.  The  transfer  of  a  bill  of  lading  for  goods  in  transitu 
had  the  same  effect  in  defeating  the  unpaid  vendor's  right  to  stop 
m  transitu  that  an  actual  deliver}'^  of  the  goods  themselves,  under 
the  same  circumstances,  would  have  had.  But  the  transfer  of 
the  document  of  title  by  means  of  which  actual  possession  of  the 
goods  could  be  obtained  had  no  greater  effect  at  common  law 
than  the  transfer  of  the  actual  possession."  ^ 

329.  It  does  not  matter  that  the  agent  is  not  known  as  a 
factor,  or  that  he  puts  his  principal's  goods  among  his  own,  and 
exposes  both  for  sale  in  the  same  way.  Thus  if  one  place  goods 
in  custody  of  a  retail  de3,ler  to  sell  upon  commission,  and  he 
places  such  goods  in  his  shop,  and  exposes  them  for  sale  with  his 
own  goods,  and  then  having  need  for  a  loan  of  money  obtains 
it  upon  a  pledge  of  his  principal's  goods  together  with  his  own, 
the  pledgee,  though  acting  in  good  faith  and  relying  upon  the 
apparent  ownership  of  the  borrower,  obtains  no  lien  upon  the 
goods  held  for  sale  upon  commission.^ 

It  is  really  immaterial  whether  or  not  the  pledgee  knew  that  he 
was  dealing  with  a  factor  ;  for  if  he  knew  he  was  dealing  with  a 
factor  he  is  bound  to  know  that  by  law  the  factor  had  no  right  to 
pledge  his  principal's  goods,  without  the  direct  authority  of  the 
latter,  of  which  the  pledgee  must  at  his  peril  satisfy  himself.^    If 

1  Cole  V.  North  Western  Bank,  L.  R.  a  similar  case,  McCreary  v.  Gaines,  55 
10  C.  P.  354,  362.  Tex.  485;  S.  C.  40  Am.  R.  818. 

2  Kinder  v.  Shaw,  2  Mass.  398;  and         »  Bott  v.  McCoy,  20  Ala.  578. 

258 


§§     30,  331.]  PLEDGES   BY   FACTORS. 

on  the  other  hand  he  did  not  know  that  he  was  deahng  with  a  fac- 
tor, his  want  of  knowledge  of  this  fact  does  not  extend  the  factor's 
authority  over  his  principal's  goods.  In  short  he  is  in  any  event 
bound  to  know  at  his  peril,  whether  the  person  with  whom  he  is 
dealing  is  the  real  owner  of  the  goods  offered  in  pledge. 

The  fact  that  one  who  is  notoriously  an  agent  or  factor,  some- 
times acts  as  a  general  merchant,  or  deals  on  his  own  account, 
does  not  exempt  him  from  the  general  rule  that  a  factor  cannot 
pledge  for  his  own  use  goods  with  which  he  has  been  entrusted 
to  sell.i 

330.  The  factor  himself  is  estopped  from  taking  advan- 
tage of  his  wrongful  act,  in  pledging  his  principal's  goods  for 
his  own  debt.  Every  pledgor  impliedly  warrants  his  own  title, 
or  that  he  has  full  authority  to  make  the  pledge.  He  cannot 
therefore  bring  trover  or  detinue  in  his  own  name,  against  the 
pledgee,  on  the  ground  that  he  had  tortiously  violated  his  au- 
thority in  pledging  his  principal's  goods.  The  latter  is  the  per- 
son injured,  and  he  can  ratify  or  disaffirm  the  act  of  his  agent  at 
his  pleasure.^ 

331.  But  it  seems  that  a  factor's  or  broker's  lien  might  at 
common  law  be  assigned  as  security  for  an  amount  not  ex- 
ceeding that  secured  by  the  lien,  provided  the  assignment  was 
expressly  so  limited.  In  M'Combie  v.  Davies,^  it  appeared  that 
a  broker  had  pledged  for  his  own  debt  goods  of  his  principal 
upon  which  he  had  a  lien.  Lord  Ellenborough,  after  saying  that 
"  nothing   could  be  clearer  than  that  liens  were  personal,  and 


in  hand,  because  the  pledgor  was  not 
a  technical  broker,  whom  they  define 
to  be  one  whose  only  business  is  to 
sell  goods  consigned  to  him. 


1  Phillips  V.  Huth,  6  M.  &W.  572 
Martini  v.  Coles,  1  M.  &  S.  140 
Baring  v.  Corrie,  2  B.  &  Aid.  137 
M'Combie  v.  Davies,    6    East,    538 

Bragg  V.  Meyer,  McAU,  408.  2  jBott  v.  McCoy,  20  Ala.  578. 

Contrary   to  the  general  rule,   see  ^  7  £ast,  5,  7. 

Hutchinson  v.  Bours,  6  Cal.  383,  where  A  factor  who  has  made  advances 

the  court,  while  recognizing  the  gen-  on  the  credit  of  the  goods  consigned 

eral  rule,  say  that  "  where  the  party  to  him  for  sale,  has  clearly  a  right  to 

pledging  is  technically  a  factor,  where  sell  enough  to  reimburse  his  advances, 

his  only  business  is  to  sell  goods  con-  unless  restrained  by  some  agreement 
signed  to  him  for  that  purpose,"  he* with  his  consignor.    Fordyce  i'.  Peper 

has  no  power   to   pledge  them;    and  (C.  C.  Ark.  1883),  16  Fed.  E,ep.  516: 
they  deny  its  application  to  the  case^Brown  v.  M'Gran,  14  Pet.  479, 

254 


PLEDGES   BY   FACTORS   AT    COMMON   LAW.  [§  332. 

could  not  be  transferred  to  third  persons  by  any  tortious  pledge 
of  the  principal's  goods,"  added,  "  that  he  would  have  it  fully 
understood  that  his  observations  were  applied  to  a  tortious  trans- 
fer of  the  goods  of  the  principal,  by  the  broker  undertaking  to 
pledge  them  as  his  own,  and  not  to  the  case  of  one  who,  intend- 
ing to  give  a  security  to  another  to  the  extent  of  his  lien,  delivers 
over  the  actual  possession  of  the  goods  on  which  he  has  the  lien 
to  that  other,  with  notice  of  his  lien,  and  appoints  that  other  as 
his  servant  to  keep  possession  of  the  goods  for  him."  And  even 
where  the  assignment  in  pledge  has  not  been  expressly  limited 
to  the  amount  of  the  factor's  advances,  it  has  been  held  that  his 
pledge  of  his  principal's  goods  is  valid  to  the  extent  of  such  in- 
terest, provided  he  retains  the  power  to  control  the  sale  of  the 
goods.^ 

Chief  Justice  Kent  in  an  opinion  in  which  he  referred  with 
approval  to  the  case  of  M'Combie  v.  Davies,  held  that  a  factor 
may  deliver  the  possession  of  goods,  on  which  he  has  a  lien,  to  a 
third  person,  with  notice  of  the  lien,  and  with  a  declaration  that 
the  transfer  is  to  such  person  as  agent  of  the  factor,  and  for  his 
benefit.^  In  such  case  there  is  in  effect  a  continuance  of  the 
factor's  possession. 

332.  At  common  law  there  is  no  substantial  difference 
between  the  effect  of  a  pledge  made  by  a  factor  and  one 
made  by  a  pledgee.^  A  distinction  has  sometimes  been  taken 
between  a  pledge  by  the  one  and  a  pledge  by  the  other  on  the 
ground  that  a  factor  has  only  a  lien  for  his  advances,  whereas  a 
pledgee  has  a  special  property  in  the  pledge.  But  a  factor  is 
generally  regarded  as  holding  in  pledge  the  goods  upon  which  he 
has  made  advances.  He  is  regarded  as  having  a  special  property 
in  such  goods,  and  not  merely  a  lien  upon  them.     A  distinction 

1  Blair  v.  Childs,  10  Heisk.  (Tenn.)  him  and  bis  principal  has  been  held 
199.  not  distinguishable,  or  barely  distin- 

2  Urquhart  v.  M'lver,  4  Johns,  guishable,  in  its  legal  incidents,  from 
N.  Y.  103,  116.  the    relation    between     pawnee    and 

2  First  Nat.  Bank  v.  Boyce,  78  Ky.  pawnor."    Judge  Story,  writing  in  re- 

42.     In  Donald  v.  Suckling,  1   Q.  B.  gard  to  this   matter,  says  "  it  is  not 

585,  597,  Shee,  J.  said:  "In  all  the  easy  to  point  out  any  substantial  dis- 

decisions  on  pledges  by  factors  the  re-  tinction  between  the  case  of  a  pledgee 

lation  between  a  factor  who  has  made  and  the  case  of  a  factor."       Baiim. 

advances  on  the   goods   intrusted  to  §  327. 

255 


§  333.]  PLEDGES  BY  FACTORS. 

may  properly  be  drawn  between  the  rights  of  a  pledgee  or  factor 
and  those  of  a  mere  lien-holder,  in  regard  to  pledging  the  prop- 
erty. The  former  has  the  right  of  possession  accompanied  by  the 
right  to  exercise  acts  of  ownership  in  the  disposition  of  the  prop- 
erty, for  the  factor  has  a  general  power  to  sell,  while  a  pledgee 
has  the  right  to  sell  upon  the  pledgor's  making  default  in  pay- 
ment of  the  debt  secured.  But  the  holder  of  a  mere  lien  has  no 
right  to  exercise  acts  of  ownership  in  the  disposition  of  the  prop- 
erty. It  is  only  by  the  intervention  of  a  court  of  equity,  or  by 
the  use  of  some  statutory  process  that  he  can  divest  the  owner 
of  his  title  in  satisfaction  of  the  lien.  In  a  leading  English  case 
upon  this  subject  J\Ir.  Justice  Mellor  said  :  ^  "I  think  that  when 
the  true  distinction  between  the  case  of  a  deposit  by  way  of 
pledge  of  goods  for  securing  the  payment  of  money,  and  all  cases 
of  lien,  correctly  so  described,  is  considered,  it  will  be  seen  that 
in  the  former  there  is  no  implication,  in  general,  of  a  contract  by 
the  pledgee  to  retain  the  personal  possession  of  the  goods  de- 
posited, and  I  think  that,  although  he  cannot  confer  upon  any 
third  person  a  better  title  or  a  greater  interest  than  he  possesses, 
yet  if  nevertheless  he  does  pledge  the  goods  to  a  third  person  for 
a  greater  interest  than  he  possesses,  such  an  act  does  not  an- 
nihilate the  contract  of  pledge  between  himself  and  the  pawnor, 
but  that  the  transaction  is  simply  inoperative  as  against  the  origi- 
nal pawnor,  who,  upon  tender  of  the  sum  secured  immediately 
becomes  entitled  to  the  possession  of  the  goods,  and  can  recover 
in  an  action  for  any  special  damage  which  he  may  have  sustained 
by  reason  of  the  act  of  the  pawnee  in  repledging  the  goods." 

The  legal  effect  of  a  pledge  by  a  factor  is  therefore  the  same 
as  that  of  a  pledge  by  a  pledgee.  Neither  the  one  nor  the  other 
is  tortious  to  such  an  extent  as  to  render  the  pledge  absolutely 
void  ab  initio;  but  the  pledge  is  good  to  the  extent  of  the 
pledgor's  interest  in  the  property. ^ 

II.   The  Factors'  Acts,  their  Application  and  Effect. 

333.  The  purpose  of  the  factors'  acts  is  to  avoid  the  incon- 
veniences to  trade  and  commerce  which  were  found  to  attend  the 
general  rule  of  the  common  law,  that  he  who  deals  with  one  ex 
mandato,  can  obtain  from  him  no  better  title  than  his  mandate 

1  Donald  V.  Suckling,  L.  R.  1  Q.  B.  ^  §§  418-423  ;  Story,  Bailm.  § 
585,  610.  327;   Donald  v.  Suckling,  supra. 

256 


THE   factors'    acts,    THEIR   APPLICATION   AND   EFFECT.       [§  334. 

enables  him  to  bestow.^  "Before  the  passing  of  the  factors'  act  " 
says  Baron  Parke,^  "it  was  clearly  settled  that  a  factor  or  agent 
for  sale  had  no  power  to  pledge,  whether  he  was  in  possession 
either  of  the  goods  themselves  or  of  the  symbol  of  the  goods, 
and  even  though  the  symbol  might  bear  on  the  face  of  it  some 
evidence  of  the  property  being  in  himself,  as  in  the  case  of  a  bill  of 
lading;  in  which  he  was  consignee  or  indorsee."  The  several 
factors'  acts,  though  not  all  in  the  same  terms,  agree  in  their 
general  purpose,  which  is  to  enable  third  persons  to  deal  with  an 
agent  intrusted  with  goods,  or  with  the  documents  of  title  to 
goods,  for  sale,  as  though  he  were  the  absolute  owner  of  the 
goods.^  "  The  general  rule  of  law  is,  that,  where  a  person  is  de- 
ceived by  another  into  believing  that  he  may  safely  deal  with 
property,  he  bears  the  loss,  unless  he  can  show  that  he  was  mis- 
led by  the  act  of  the  true  owner.  The  legislature  seem  to  us  to 
have  wished  to  make  it  the  law,  that,  where  a  third  person  has 
intrusted  goods  or  the  documents  of  title  to  goods  to  an  agent 
who  in  the  course  of  such  agency  sells  or  pledges  the  goods,  he 
should  be  deemed  by  that  act  to  have  misled  any  one  who  bond 
fide  deals  with  the  agent  and  makes  a  purchase  from  or  an  ad- 
vance to  him  without  notice  that  he  was  not  authorized  to  sell 
or  to  procure  the  advance."  * 

334.  Louisiana.^  —  All  merchants,  factors,  and  others  who 
may  have  a  general  balance  of  account,  or  any  sum  of  money 
due  them  by  any  consignor  or  other  person  sending  them  cotton, 
sugar,  or  other  agricultural  products  for  sale  at  the  port  of  New 
Orleans,  or  at  any  other  town  in  the  state,  shall  have  a  pledge 
upon  all  such  property  consigned  or  sent  to  them  by  ship,  vessel, 

^  First  Nat.  Bank  v.  Sliaw,  61  N.  Y.  transmission,  and  from  that  moment 

283,  per  Dwight,  C;    Cartwright   v.  they  are  effectually  jjledged  to  him, 

Wilmerding,  24  N.  Y.  521,  529.  Therefore,  when  one  purchased  cotton 

'^  Phillips  V.  Huth,  6  M.  &  VV.  572,  at  Shreveport  without  paying  for  it, 

596.  and  shipped  it  to  New  Orleans,  it  was 

^  Henry  v.  Philadelphia  Warehouse  held  that  the  consignee  had  a  pledge 

Co.,  81  Ph.  St.  76.  of  the  cotton  from  the  time  the  bill  of 

^  Cole  V.  North  Western  Bank,  per  lading  was   given   to  the   carrier  for 

Blackburn,  J.,  L.  R.  10  C.  P.  354,  372.  transmission,  superior  to  the  vendor's 

^  Act  of  1874,  No.  66.  hen   under  the  code   for    the    unpaid 

Under  this  act  a  consignee  of  goods  purchase  money.     Florsheim  v.  How- 
has  possession  from  the  moment  the  bill  ell,  33  La.  Ann.  1184. 
of  lading  is  given  to  the  carrier  for 

17  267 


§  334.]  PLEDGES  BY  FACTORS. 

railroad,  or  other  carrier,  from  the  time  the  bill  of  lading  or  re- 
ceipt therefor  by  the  carrier,  is  deposited  in  the  mail  or  given  to 
the  carrier  for  transmission,  which  pledge  shall  be  perfect,  with 
the  right  of  sale  of  said  property,  which  shall  be  fully  vested  in 
said  consignee,  with  the  right  to  appropriate  the  proceeds  of  sale 
to  the  amount  due  consignee  ;  provided  that  nothing  herein  shall 
be  so  construed  as  to  defeat  or  lessen  the  privilege  of  any  laborers 
and  landlords  in  this  state  for  wages  and  rent,  as  now  existing  by 
law. 

Under  a  statute  giving  a  consignee  a  lien  by  way  of  pledge 
upon  goods  consigned  to  him  for  his  advances  upon  them,  if  he 
has  control  of  the  goods,  "  or  if  before  their  arrival  he  can  show 
by  a  bill  of  lading,  or  letter  of  advice,  that  thej  have  been 
dispatched  to  him,"  ^  the  consignee,  after  receiving  such  letter 
of  advice,  or  a  bill  of  lading,  has  a  lien  which  cannot  be  defeated 
by  the  consignor's  drawing  a  draft  against  the  goods,  obtaining  a 
discount  of  it,  and  using  the  proceeds  for  the  purchase  of  the 
goods  so  consigned.^ 

By  a  recent  statute  "  in  this  state,  it  is  provided  that  a  party 
who  may  boi-row  money  on  the  faith  of  warehouse  receipts  rep- 
resenting property  in  store,  shall  file  their  afiidavit  with  the 
pledgee  that  such  property  is  his,  the  pledgor's,  personal  prop- 
erty, or  that  it  is  the  property  of  some  party  for  whom  the  pledgor 
is  acting  as  agent,  factor,  commission  merchant,  or  in  any  other 
fiduciary  capacity,  and  that  said  party  is  justly  and  truly  in- 
debted to  the  pledgor  in  an  amount  equal  in  value  to  the  value 
of  the  property  pledged,  as  specified  in  the  warehouse  receipt,  for 
moneys  paid  to  him,  or  paid  by  his  order,  and  for  his  account,  by 
the  party  or  consignee  making  the  pledge. 

The  vendor's  lien  of  five  days'  privilege,  now  allowed  in  com- 
mercial transactions  for  the  payment  of  the  purchase  price,  shall 
not  be  affected  by  the  provisions  of  this  act,  except  in  cases  in 
which  a  warehouse  receipt  has  been  pledged  as  coHateral  for 
money  borrowed.  The  holder  of  the  warehouse  receipt  shall  be 
considered  and  held  as  the  actual  owner  of  the  property  described 
in  the  receipt,  and  no  clause  of  this  act  shall  operate  to  the  detri- 
ment or  injury  of  the  holder  of  a  warehouse  receipt,  to  the  extent 
of  the  value  of  the  property  specified,  made  and  issued  in  accord- 

1  Louisiana  R.  Code,  Art.  3247.  »  Acts  of  1876,  p.  114,  §§  4  &  5. 

a  Helm  v.  Meyer,  30  La.  Ann.  943. 

258 


THE   factors'   acts,   THEIR  APPLICATION   AND   EFFECT.       [§  335. 

ance  with,  and  under  the  provisions  of  this  act,  provided  that 
where  the  factor,  agent,  or  pledgor  may  have  wrongfully  pledged, 
in  violation  of  this  act,  any  property,  the  lien  of  the  owner  shall 
be  valid,  even  against  the  third  holder  of  the  warehouse  receipt. 

Before  the  enactment  of  this  latter  statute,^  a  factor  could  not 
pledge  for  his  own  debts  the  property  of  his  principal.^  This 
act  makes  warehouse  receipts  the  representatives  of  property  in 
store,  and  provides  for  their  use  to  borrow  money  upon  ;  but 
the  implication  is  clear  that  their  use  in  that  way  by  a  factor  for 
more  than  the  value  of  his  interest  in  the  property  would  be 
wrongful  and  invalid  against  the  owner.  Therefore,  where  a 
factor  has  no  interest  in  the  consigned  property,  he  cannot  now 
pledge  it  for  his  own  debt  any  more  than  he  could  before  the 
enactment  of  the  statute.  His  pledge  of  such  property,  though 
accompanied  by  a  warehouse  receipt  setting  forth  that  the  prop- 
erty is  deliverable  to  the  pledgee,  is  invalid,  and  confers  no  title 
adverse  to  that  of  his  consignor, 

335.  Maryland..^  —  Any  person  intrusted  with  and  in  posses- 
sion of  any  bills  of  lading,  storekeeper's  or  inspector's  certificates, 
order  for  the  delivery  of  goods,  or  other  document  showing  pos- 
session, shall  be  deemed  the  true  owner  of  the  goods,  wares,  or 
merchandise  described  therein,  so  far  as  to  give  validity  to  any 
contract  thereafter  to  be  made  by  such  person,  with  any  other 
person  or  body  corporate  for  the  sale  or  disposal  of  the  said 
goods,  wares,  or  merchandise,  or  for  the  pledge  or  deposit  thereof 
as  a  security  for  any  money  or  negotiable  instrument  advanced 
or  given  on  faith  of  such  documents,  or  either  of  them  ;  provided, 
that  such  person  or  body  corporate  shall  not  have  notice  by  such 
document  or  otherwise,  that  the  person  so  intrusted  is  not  the 
actual  and  hond  fide  owner  of  such  goods,  wares,  and  merchan- 
dise. 

If  any  person  or  body  corporate  shall  take  any  goods,  wares,  or 
merchandise,  or  any  document  mentioned  in  the  foregoing  clause, 
in  deposit  or  pledge  from  any  person  so  intrusted  with  the  same, 
or  to  whom  the  same  may  be  consigned,  or  who  may  be  intrusted 

^  Acts  1876,  p.  113,  No.  72.  v.  Scott,  25  lb,  313;  Insurance  Co.  t;. 

»  Stetson    V.    Gurney,   17    La.  163,  Kiger,   103  U.  S.   352, 
166.     Hadwin  v.  Fisk,  1  La.  Ann.  43;         »  R,  Code,  1878,  pp.  291,  292,  §§  3, 

Miller  V.  Schneider,  19  lb.  300;  Young  5,  6,  p.  294,  §  14. 

259 


§  836.]  PLEDGES  BY  FACTORS. 

with  and  in  possession  of  any  such  bill  of  lading,  storekeeper's  or 
inspector's  certificate,  order  for  the  deliver}'-  of  goods,  or  other 
such  document  showing  possession,  without  notice,  as  a  security 
for  an}^  debt  or  demand  existing  before  the  time  of  such  deposit 
or  pledge,  then  such  person  shall  acquire  such  right,  title,  or  in- 
terest as  was  possessed  and  might  have  been  enforced  by  the  per- 
son from  whom  he  received  the  same,  and  no  more. 

Any  person  or  body  corporate  may  take  any  goods,  wares,  or 
merchandise,  or  any  such  document  as  aforesaid,  in  deposit  or 
pledge  as  a  security  for  a  preexisting  debt  or  demand  from  such 
agent  or  factor,  knowing  him  to  be  such,  but  with  such  notice 
they  shall  only  acquire  the  right  or  interest  therein  which  was 
possessed  by  such  agent  or  factor  at  the  time  of  the  deposit  or 
pledge ;  but  if  he  shall  have  notice  that  such  agent  or  factor  had 
no  authority  from  his  principal  to  pledge  or  deposit  the  same,  or 
to  part  with  the  possession  thereof,  in  such  case  such  person  or 
body  corporate  shall  acquire  no  right  or  interest  therein. 

Every  mortgage,  pledge,  deposit,  or  other  disposal  by  said 
commission  merchant,  factor,  agent,  bailee,  or  consignee  of  ag- 
ricultural productions,  consigned  for  sale  alone,  unless  with  the 
consent  of  the  grower,  producer,  or  other  owner,  expressly  given, 
shall  be  null  and  void,  and  no  title  to  said  articles  or  any  of 
them  shall  pass  to  the  person  receiving  the  same,  but  the  title 
thereto  shall  remain  in  the  grower,  producer,  or  other  consignor 
thereof,  as  if  no  such  mortgage,  pledge,  deposit,  or  other  disposal 
had  been  made. 

336.  Massachusetts.!  —  Every  person  in  whose  name  mer- 
chandise is  shipped  for  sale  by  a  person  in  the  lawful  possession 
thereof  at  the  time  of  the  shipment,  shall  be  deemed  to  be  the 
true  owner  thereof  so  far  as  to  entitle  the  consignee  to  a  lien 
thereon  for  money  advanced,  or  securities  given  to  the  shipper  for 
one  on  account  of  such  consignment,  unless  the  consignee,  at  or 
before  the  time  when  he  made  the  advances  or  gave  the  secu- 
rities, had  notice  by  the  bill  of  lading,  or  otherwise  that  the  ship- 
per was  not  the  actual  and  bond  fide  owner. 

Every  factor  or  other  agent  intrusted  with  the  possession  of 
merchandise  or  a  bill  of  lading,  consigning  merchandise  to  him 
for  the  purpose  of  sale,  shall  be  deemed  to  be  the  true  owner 
1  G.  S.  1860,  c.  54  ;  P.  S.  1882,  c.  71. 

260 


THE   factors'   acts,   THEIR   APPLICATION   AND   EFFECT.      [§  336. 

thereof,  so  far  as  to  give  validity  to  any  bond  fide  contract  made 
by  him,  with  any  other  person  for  the  sale  of  the  whole  or  any 
part  of  such  merchandise. 

When  a  person  intrusted  with  merchandise,  and  having  au- 
thority to  sell  or  consign  the  same,  ships  or  otherwise  transmits 
or  delivers  it  to  any  other  person,  such  other  person  shall  have  a 
lien  thereon  for  any  money  or  merchandise  advanced,  or  nego- 
tiable security  given  by  him,  on  the  faith  of  such  consignment,  to 
or  for  the  use  of  the  person  in  whose  name  such  consignment  or 
delivery  was  made  ;  and  for  any  money,  negotiable  security,  or 
merchandise,  received  for  the  use  of  the  consignee  by  the  person 
in  whose  name  such  consignment  or  delivery  was  made,  if  such 
consignee  had,  at  the  time  of  such  advance  or  receipt,  probable 
cause  to  believe  that  the  person  in  whose  name  the  merchandise 
was  shipped,  transmitted,  or  delivered,  was  the  actual  owner 
thereof  or  had  a  legal  interest  therein  to  the  amount  of  said 
lien. 

When  a  consignee  or  factor  having  possession  of  merchandise 
with  authority  to  sell  the  same,  or  having  possession  of  a  bill  of 
lading,  permit,  certificate,  or  order,  for  the  delivery  of  merchan- 
dise, with  like  authority  deposits  or  pledges  such  merchandise  or 
any  part  thereof,  or  such  document,  with  any  other  person  as  a 
security  for  money  or  merchandise  advanced,  or  a  negotiable  in- 
strument given  by  him  upon  the  credit  thereof,  such  other  person 
if  he  makes  such  loans,  advances,  and  exchanges,  in  good  faith 
and  with  probable  cause  to  believe  that  the  agent,  making  the 
deposit  or  pledge  had  authority  so  to  do,  and  was  not  acting 
fraudulently  against  the  owner  of  such  merchandise,  shall  acquire 
the  same  interest  in  and  authority  over,  such  merchandise  and 
documents  as  he  would  have  acquired  thereby  if  the  agent  had 
been  the  actual  owner  thereof,  notwithstanding  he  had  notice  of 
such  agency. 

When  such  merchandise  or  document  is  accepted  in  deposit  or 
pledge,  for  an  antecedent  debt  due  from  such  consignee  or  factor, 
the  person  receiving  the  same  shall  thereby  acquire  no  other  or 
further  right,  or  interest  in,  or  authority  over,  or  lien  upon,  the 
same  than  the  consignee  or  factor  might  have  enforced  against 
the  actual  owner. 

These  provisions  shall  not  affect  the  lion  of  a  consignee  or 
factor  at  law,  for  the  expenses  and  charges  attending  the  ship- 

2G1 


§  337.]  PLEDGES   BY   FACTORS. 

ment,  transportation,  and  care  of  merchandise  intrusted  to  him  ; 
nor  prevent  the  actual  owner  from  recovering  such  merchandise 
from  the  consignee  or  factor  previous  to  the  pledge  thereof,  or 
from  his  assignees  in  case  of  his  insolvency  ;  nor  prevent  such 
owner  from  recovering  any  merchandise  or  document  so  de- 
posited or  pledged,  upon  tender  of  the  money  and  restoration  of 
the  negotiable  security  or  property  so  advanced  to  such  consignee 
or  factor,  and  upon  tender  of  such  further  sum  of  money  and 
restoration  of  such  negotiable  instrument  or  property  as  may 
have  been  advanced  or  given  by  the  consignee  or  factor  to  the 
owner,  or  upon  tender  of  a  sum  of  money  equal  to  the  amount  or 
value  thereof,  nor  prevent  liira  from  recovering  from  the  person 
with  whom  such  merchandise  may  have  been  so  deposited  or 
pledged,  any  balance  of  money  remaining  in  his  hands  as  the 
proceeds  of  the  sales  thereof,  after  deducting  the  amount  of  the 
moneys  or  of  the  negotiable  security  so  advanced  thereon.^ 

337.  New  York^  and  Ohio.^  —  Every  person  in  whose  name 
any  merchandise  shall  be  shipped  shall  be  deemed  the  true  owner 
thereof,  so  far  as  to  entitle  the  consignee  of  such  merchandise  to 
a  lien  thereon  ;  1.  For  any  money  advanced  or  negotiable  se- 
curity given  by  such  consignee,  to  or  for  the  use  of  the  person  in 
whose  name  such  shipment  shall  have  been  made  ;  and,  2.  For 
any  money  or  negotiable  security  received  by  the  person  in  whose 
name  such  shipment  shall  have  been  made  to  or  for  the  use  of 
such  consignee.  The  lien  so  provided  for  shall  not  exist  where 
such  consignee  shall  have  notice,  by  the  bill  of  lading  or  other- 
wise, at  or  before  the  advancing  of  any  money  or  security  by  him, 
or  at  or  before  the  receiving  of  such  money  or  security  by  the 

1  A   consignee   or   factor  who   de-  use   any  money  or  negotiable  instru- 

posits    or   pledges    merchandise   or  a  ment  raised  or  acquired  by  the  sale  or 

bill    of    lading,    certificate,    or    order  other  disposition  of  such  merchandise, 

for  the  delivery  of  merchandise,  con-  bill    of   lading,    certificate,    or   order, 

signed  or  intrusted  to  him  as  security  shall  be  punished  by  fine  not  exceed- 

for  money  borrowed,  or  a  negotiable  ing   five    thousand    dollars,    and    im- 

instrument   received   by  him,  or  dis-  prisonment  not  exceeding  five  years, 

poses  of   or  applies  the  same  to  his  P.  S.  1882,  c.  203,  §  75. 

own  use  in  violation  of  good  faith  and  ^  2  R.  S.  1875,  p.  11C8,  §§  1-5;  3  R. 

with    intent    to    defraud    the   owner  S.  1882,  p.  2257. 

thereof,  or  with  tire  like  fraudulent  in-  3  i  R.  s.  1880,  §§  3214,  3218. 
tent  disposes  of,  or  applies  to  his  own 

262 


THE   factors'   acts,   THEIR   APPLICATION   AND   EFFECT.      [§  337. 

person  in  whose  name  the  shipment  shall  have  been  made,  that 
such  person  is  not  the  actual  and  bond  fide  owner  thereof. 

Every  factor  or  other  agent  intrusted  with  the  possession  of 
any  bill  of  lading,  custom-house  permit,  or  warehouse-keeper's 
receipt  for  the  delivery  of  any  such  merchandise,  and  every  such 
factor  or  agent  not  having  the  documentary  evidence  of  title,  who 
shall  be  intrusted  with  the  possession  of  any  merchandise  for  the 
purpose  of  sale,  or  as  a  security  for  any  advances  to  be  made  or 
obtained  thereon,  shall  be  deemed  to  be  the  true  owner  thereof, 
so  far  as  to  give  validity  to  any  contract  made  by  such  agent 
with  any  other  person  for  the  sale  or  disposition  of  the  whole  or 
any  part  of  such  merchandise,  for  any  money  advanced  or  nego- 
tiable instrument  or  other  obligation  in  writing  given  by  such 
other  person  upon  the  faith  thereof. 

Every  person  who  shall  hereafter  accept  or  take  any  such  mer- 
chandise in  deposit  from  any  such  agent  as  a  security  for  any 
antecedent  debt  or  demand,  shall  not  acquire  thereby,  or  enforce 
any  right  or  interest  in  or  to  such  merchandise  or  document, 
other  than  was  possessed  or  might  have  been  enforced  by  such 
agent  at  the  time  of  such  deposit. 

Nothing  contained  in  the  foregoing  provisions  shall  be  con- 
strued to  prevent  the  true  owner  of  any  merchandise  so  depos- 
ited, from  demanding  or  receiving  the  same,  upon  repayment  of 
the  money  advanced,  or  on  restoration  of  the  security  given  on 
the  deposit  of  such  merchandise,  and  upon  satisfying  such  lien  as 
may  exist  thereon  in  favor  of  the  agent  who  may  have  deposited 
the  same  ;  nor  from  recovering  any  balance  which  may  remain 
in  the  hands  of  the  person  with  whom  such  merchandise  shall 
have  been  deposited  as  the  produce  of  the  sale  thereof,  after 
satisfying  the  amount  justly  due  to  such  person  by  reason  of 
such  deposit.^ 

^  It  is  further  provided  in  New  York  factor  or  agent  who  shall  sell  any  mer- 
that  every  factor  or  agent  who  shall  chandise  intrusted  or  consigned  to 
deposit  any  merchandise  intrusted  or  him,  in  the  like  manner  and  with  the 
consigned  to  him,  or  any  document  so  like  fraudulent  intent;  and  every  other 
possessed  or  intrusted  as  aforesaid,  as  person  who  shall  knowingly  connive 
a  security  for  any  money  borrowed  or  with,  or  aid  or  assist,  any  such  factor 
negotiable  instrument  received  by  such  or  agent  in  any  such  fraudulent  de- 
factor  or  agent,  and  shall  apply  or  dis-  posit  or  sale,  shall  be  deemed  guilty  of 
pose  of  the  same  to  his  own  use,  con-  a  misdemeanor,  apd  upon  conviction 
trary  to  good  faith,  and  with  intent  to  thereof,  shall  be  punislied  by  fine  and 
defraud   the  true  owner  ;    and  Q,\(iYY  imprisonment,  at  the  discretion  of  the 

263 


§  338.]  PLEDGES  BY  FACTORS. 

338.  Pennsylvania.^ — Whenever  any  person  intrusted  with 
merchandise,  and  having  authority  to  sell  or  consign  the  same, 
shall  ship  or  otherwise  transmit  the  same  to  any  other  person,  such 
other  person  shall  have  a  lien  thereon.  1st.  For  any  money  ad- 
vanced or  negotiable  security  given  by  him  on  the  faith  of  such 
consignment  to,  or  for  the  use  of  the  person  in  whose  name  such 
merchandise  was  shipped  or  transmitted.  2d.  For  any  money  or 
negotiable  security  received  for  the  use  of  such  consignee  by  the 
person  in  whose  name  such  merchandise  was  shipped  or  trans- 
mitted. But  such  lien  shall  not  exist  for  au}'^  of  the  purposes 
aforesaid,  if  such  consignee  shall  have  notice,  by  the  bill  of  lad- 
ing or  otherwise,  before  the  time  of  such  advance  or  receipt,  that 
the  person  in  whose  name  such  merchandise  was  shipped  or 
transmitted,  is  not  the  actual  owner  thereof. 

Whenever  any  consignee  or  factor  having  possession  of  mer- 
chandise, with  authority  to  sell  the  same,  or  having  possession  of 
any  bill  of  lading,  permit,  certificate,  receipt,  or  order  for  the 
delivery  of  merchandise  with  the  like  authority,  shall  deposit  or 
pledge  such  merchandise,  or  any  part  thereof  with  any  other  per- 
son, as  a  security  for  any  money  advanced  or  negotiable  instru- 
ment given  by  him  on  the  faith  thereof  ;  such  other  person  shall 
acquire,  by  virtue  of  such  contract,  the  same  interest  in,  and 
authority  over,  the  said  merchandise,  as  he  would  have  acquired 
thereby,  if  such  consignee  or  factor  had  been  the  actual  owner 
thereof  ;  provided,  that  such  person  shall  not  have  notice  by  such 
document  or  otherwise,  before  the  time  of  such  advance  or  re- 
ceipt, that  the  holder  of  such  merchandise  or  document  is  not  the 
actual  owner  of  such  merchandise. 

If  any  person  shall  accept  or  take  such  merchandise  or  docu- 
ment from  any  such  consignee  or  factor,  in  deposit  or  pledge  for 
any  debt  or  demand  previously  due  by  or  existing  against  such 
consignee  or  factor,  and  without  notice  as  aforesaid,  and  if  any 
person  shall  accept  or  take  such  merchandise  or  document  from 
any  such  consignee  or  factor,  in  deposit  or  pledge,  with  notice  or 
knowledge  that  the  person  making  such  deposit  or  pledge  is  a 
consignee  or  factor  only,  in  every  such  case,  the  person  accepting 
or  taking  such  merchandise  or  document  in  deposit  or  pledge, 

court  in  whicb   such  conviction  shall         ^  Brightly's  &Purdon's  Digest,  1873, 

take  place.     3  R.   S.  1881,    p.    2258,     p.  664. 

§7. 

264 


THE   factors'   acts,   THEIR   APPLICATION   AND   EFFECT.      [§  339. 

shall  acquire  the  same  right  and  interest  in  such  merchandise  as 
was  possessed  or  could  have  been  enforced  by  such  consignee  or 
factor  against  his  principal,  at  the  time  of  making  such  deposit 
or  pledge,  and  no  further  or  other  right  or  interest. 

Nothing  in  this  act  contained  shall  be  construed  or  taken : 
1st.  To  affect  any  lien  which  a  consignee  or  factor  may  possess 
at  law  for  the  expenses  and  charges  attending  the  shipment  or 
transmission  and  care  of  merchandise  consigned  or  otherwise  in- 
trusted to  him.  2d.  Nor  to  prevent  the  actual  owner  of  mer- 
chandise from  recovering  the  same  from  such  consignee  or  factor, 
before  tlie  same  shall  have  been  deposited  or  pledged  aforesaid, 
or  from  the  assignees  or  trustees  of  such  consignee  or  factor  in 
the  event  of  his  insolvency.  3d.  Nor  to  prevent  such  owner 
from  recovering  any  mei'chandise  so  as  aforesaid  deposited  or 
pledged,  upon  tender  of  the  money,  or  of  restoration  of  any 
negotiable  instrument  so  advanced  or  given  to  such  consignee  or 
factor,  and  upon  tender  of  such  further  sura  of  money  or  of  res- 
toration of  such  other  negotiable  instrument,  if  any,  as  may  have 
been  advanced  or  given  by  such  consignee  or  factor  to  such  owner, 
or  on  tender  of  a  sum  of  money  equal  to  the  amount  of  such  in- 
strument. 4th.  Nor  to  prevent  such  owner  from  recovering  from 
the  person  accepting  or  taking  such  merchandise  in  deposit  or 
pledge,  any  balance  or  sum  of  money  remaining  in  his  hands  as 
the  produce  of  the  sale  of  such  merchandise  after  deducting 
thereout  the  amount  of  money  or  the  negotiable  instrument  so 
advanced  or  given  upon  the  security  thereof  as  aforesaid.^ 

339.  Rhode  Island.^  —  The  consignee  of  merchandise  shipped 

^  If  any  consignee  or  factor  having  of  such  merchandise,  and  if  any  con- 
the  possession  of  merchandise  with  signee  or  factor  shall,  with  like  fraud- 
authority  to  sell  the  same,  or  having  ulent  intent,  apply  or  dispose  of  to 
possession  of  any  bill  of  lading,  per-  his  own  use  any  money  or  negotiable 
mit,  certificate,  receipt  or  order  for  instrument,  raised  or  acquired  by  the 
the  delivery  of  merchandise  with  the  sale  or  other  disposition  of  such  mer- 
like  authority,  shall  deposit,  or  pledge  chandise,  such  consignee  or  factor  in 
such  merchandise  or  document,  con-  every  such  case  shall  be  guilty  of  a 
signed  or  intrusted  to  him  as  afore-  misdemeanor,  and  be  sentenced  to  pay 
said,  as  a  security  for  any  money  a  fine,  not  exceeding  two  thousand 
borrowed  or  negotiable  instrument  dollars,  and  undergo  an  imprisonment 
received  by  such  consignee  or  factor,  not  exceeding  five  years.  Brightly's 
and  shall  apply  or  dispose  of  the  same  &  Purdon's  Dig.  1873,  p.  349,  §  178. 
to  his  own  use,  in  violation  of  good  ^  G.  S.  1872,  p.  261,  c.  123  ;  P.  S. 
faith,  with  intent  to  defraud  the  owner  1882,  c.  136. 

265 


§  339.]  PLEDGES   BY   FACTORS. 

shall  have  a  lien  thereon  for  any  money  or  negotiable  security, 
by  him  advanced  upon  the  faith  of  such  shipment  to,  or  for  the 
use  of,  the  person  in  whose  name  the  shipment  shall  have  been 
made,  in  the  same  manner,  and  to  the  same  extent,  as  if  such 
person  were  the  true  owner  thereof :  provided,  at  the  time  of  the 
advance  the  consignee  shall  have  had  no  notice  or  knowledge 
that  the  shipper  was  not  the  true  owner  of  such  merchandise. 

Every  person  intrusted  with  and  in  the  possession  of  goods  for 
the  purpose  of  sale,  or  if  any  bill  of  lading,  receipt  or  certificate 
of  a  warehouse-keeper  or  inspector,  or  of  any  warrant  or  order 
for  the  delivery  of  goods,  shall  be  deemed  the  true  owner  of  the 
goods  so  by  him  possessed,  or  described  in  either  of  said  in- 
struments in  favor  of  the  purchaser  or  pledgee  of  such  goods,  for 
money  or  negotiable  security :  provided,  that  such  purchaser  or 
pledgee  at  the  time  of  payment  or  advance  as  aforesaid,  shall 
have  had  no  notice  or  knowledge  that  the  possessor  of  such  goods 
or  instrument  was  not  the  true  owner  of  such  goods  by  him  pos- 
sessed, or  in  such  instrument  described. 

Nothing  in  the  preceding  section  shall  be  construed  to  author- 
ize a  common  carrier,  warehouse  keeper,  or  other  person  to  whom 
merchandise  or  other  property  may  have  been  committed  for 
transportation  or  storage  only,  to  sell  or  pledge  the  same ;  nor 
shall  any  person  taking  in  deposit  or  pledge  merchandise  or 
goods  described  in  either  of  the  instruments  therein  mentioned, 
from  any  agent  for  sale,  warehouse  keeper  or  inspector,  for  an 
antecedent  debt,  be  entitled  to  any  greater  interest  in  such  goods 
or  instrument  than  was  possessed  by  such  agent,  warehouse 
keeper  or  inspector  at  the  time  of  such  deposit  or  pledge. 

All  purchases  and  contracts  for  the  purchase  of  goods  made  with, 
and  all  payments  for  goods  made  to,  any  agent  intrusted  there- 
with, or  with  or  to  the  consignee  thereof  in  the  ordinary  course 
of  business,  shall  bind  the  owner  of  such  goods  in  favor  of  the  pur- 
chaser, contractor  or  payee,  though  knowing  of  the  agency  or  con- 
signment ;  provided  he  had  at  the  time  of  such  purchase,  contract 
or  payment,  no  notice  or  knowledge  that  such  agent  or  consignee 
was  not  authorized  to  sell  or  receive  payment  for  such  goods. 

Nothing  herein  contained   shall  be  construed  to  prevent  the 

true  owner  of  any  goods  shipped,  intrusted,  deposited,  or  pledged 

as  hereinbefore  described,  from  demanding  the  same  from  his 

factor,  agent  or  consignee  before  the  same  shall  have  been  so  sold, 

266 


THE   factors'   acts,   THEIR   APPLICATION   AND   EFFECT.       [§  340. 

contracted  to  be  sold,  deposited  or  pledged ;  nor  to  prevent  such 
owner  from  demanding  and  receiving  from  any  such  purchaser 
the  sum  agreed  to  be  paid  for  the  purchase  of  such  goods,  sub- 
ject to  any  right  of  set-off  on  the  part  of  such  purchaser  against 
such  agent  or  factor ;  nor  to  prevent  any  such  owner  from  de- 
manding and  recovering  such  goods  from  any  person  with  whom 
the  same  may  have  been  so  deposited  or  pledged  as  a  security 
for  any  money  or  other  property  advanced,  or  any  negotiable 
security  or  obligation  in  writing  given  as  aforesaid,  upon  re- 
payment of  such  money,  or  restoration  of  such  other  property, 
and  satisfaction  of  such  security  or  obligation  in  writing  so  ad- 
vanced, together  with  such  further  sum  as  shall,  with  the  amount 
80  advanced  by  such  depositary  or  pledgee,  be  equal  to  the  money 
or  other  property  and  security  or  obligation  in  writing,  if  any, 
advanced  by  such  agent  or  factor  to  such  owner,  or  to  the  amount 
for  which  such  agent  or  factor  has  a  lien  on  the  same  goods ;  nor 
to  prevent  such  owner  from  recovering  from  such  depositary  or 
pledgee  any  balance  or  sum  of  money  remaining  in  his  hands  as 
the  produce  of  the  sale  of  such  goods,  after  deducting  thereout 
the  amount  of  the  money  or  other  property  or  security  m  writ- 
ing so  advanced;  and  the  amount  so  set  off  and  retained  by  such 
purchaser,  or  paid  by  such  owner  on  redeeming  such  goods,  or 
in  any  manner  allowed  by  him  on  recovering  the  same  or  the 
produce  of  the  sale  thereof,  shall  be  deemed  and  taken  as  so  much 
paid  by  him  to  and  for  the  use  of  such  agent  or  factor.^ 

340.  Wisconsin.2  —  Every  consignee  of  property  shall  have 
a  lien  thereon  for  any  money  advanced  or  negotiable  security 
given  by  him  to  or  for  the  use  of  the  person  in  whose  name  the 
shipment  of  such  property  is  made,  and  for  any  money  or  negoti- 

1  Every  aj^ent  or  factor  who  shall  factor,  and  shall   apply  or  dispose  of 

deposit  or   pledge    any  goods,  wares  the  proceeds  thereof  to  his  own  use, 

or  merchandise,  or  any  bill  of  lading,  in  violation   of   good  faith,  and  with 

receipt,  or  certificate  of  a  warehouse-  intent  to  defraud  any  such  owner  of 

keeper   or  inspector,  or  any  warrant  such  goods,  shall  be  deemed  and  taken 

or   order   for    the   delivery  of  goods  to  be    guilty  of   a  misdemeanor   and 

•with  which   he    shall   have  been  in-  shall  be  fined  not  excee<ling  one  thou- 

trusted,    or   which    shall    have    been  sand    dollars,   or   be   imprisoned   not 

consigned    to   him    as   a   security  for  exceeding  five  years.     G.  S.  1872,  p. 

any    money,  or   other   property    bor-  546,  §  19 ;  P.  S.  18H2,  c.  242,  §  20. 

rowed  or  received  by  such  agent  or  2  n.  §_  1^7^^  p_  ^^54^  §§  3345-3347. 

267 


§  341.]  PLEDGES   BY   FACTORS. 

able  security  received  by  such  person  for  bis  use,  unless  he  shall, 
before  advancing  any  such  money,  or  giving  such  security,  or  be- 
fore it  is  so  received  for  his  use,  have  notice  that  such  person  is 
not  tlie  actual  owner  thereof. 

Every  factor,  broker  or  other  agent  intrusted  by  the  owner 
with  the  possession  of  any  bill  of  lading,  custom  house  permit, 
warehouse  receipt  or  other  evidence  of  the  title  to  personal  prop- 
erty, or  with  the  possession  of  personal  property  for  the  purpose 
of  sale,  or  as  security  for  any  advances  made  or  liability  by  him 
incurred  in  reference  to  such  property,  shall  have  a  lien  upon 
such  personal  property  for  all  such  advances,  liability  incurred  or 
commissions  or  other  moneys  due  him  for  services  as  such  factor, 
broker  or  agent,  and  may  retain  the  possession  of  such  property 
until  such  advances,  commissions  or  moneys  are  paid,  or  such  lia- 
bility is  discharged.^ 

Every  person  having  a  lien  given  by  either  of  the  above  pro- 
visions, or  existing  in  favor  of  any  bailee  for  hire,  carrier,  ware- 
houseman or  pawnee,  or  otherwise  by  the  common  law,  may  in 
case  such  debt  remain  unpaid  for  three  months,  and  the  value  of 
the  property  affected  thereby  does  not  exceed  one  hundred 
dollars,  sell  such  property  at  public  auction,  and  appl}^  the  pro- 
ceeds of  such  sale  to  the  payment  of  the  amount  due  him,  and 
the  expenses  of  such  sale.  Notice  in  writing  of  the  time  and  place 
of  such  sale,  and  of  the  amount  claimed  to  be  due,  shall  be  given 
to  the  owner  of  such  property  personally,  or  by  leaving  the  same 
at  his  place  of  abode,  if  a  resident  of  this  state,  and  if  not,  by 
publication  thereof  once  in  each  week  for  three  weeks  successively, 
next  before  the  time  of  sale  in  some  newspaper  published  in  the 
county  in  which  such  lien  accrues,  if  there  be  one,  and  if  not,  by 
posting  such  notice  in  three  public  places  in  such  county.  If 
such  property  exceed  in  value  one  hundred  dollars,  then  such 
lien  may  be  enforced  against  the  same  b}^  action  in  any  court 
having  jurisdiction. 

341.   So  far  as  the  factors'  acts  have  not  changed  the  law, 

^  This  statute    applies   to   receipts  from  which   that   of   Wisconsin   was 

given  by  private  warehouses,  and  not  taken;    for  in   the  latter  state  ihere 

merely   to    bonded   warehouses.      In  are  no  bonded  warehouses.     Price  v. 

this  respect  the  statute  is  construed  Wisconsin   Marine   &   Fire   Ins.   Co., 

differently  from  the  New  York  statute  43  AVis.  267. 

268 


THE   factors'   acts,   THEIR   APPLICATION   AND   EFFECT.      [§  342. 

the  common  law  rule  still  prevails  ;  and  a  factor  holdino-  the 
goods  of  another  even  with  documentary  evidence  of  title  has  no 
power  to  pledge  them,  unless  such  power  has  been  conferred  upon 
him  by  the  owner.i  Even  under  the  factors'  act  an  agent  has 
no  power  to  pledge  goods  in  his  possession,  unless  they  have  been 
intrusted  to  him  for  the  purpose  of  sale.  To  make  the  pledge  of 
an  agent  in  possession  of  goods  valid,  he  must  have  had  at  the  time 
of  the  pledge  power  to  sell  them.  Authority  subsequently  given 
him  by  his  principal  to  sell  the  goods,  without  knowledge  of  the 
pledge,  will  not  make  the  title  of  the  pledge  valid.2  The  effect 
of  the  factors'  acts  will  not  be  extended  beyond  their  terms. 

A  mere  consignee  who  is  not  a  factor,  and  has  not  possession 
of  the  goods,  nor  any  indicia  of  title,  cannot  pledge  them.  Thus 
if  a  consignee,  having  only  a  letter  of  instruction  from  the  owner, 
"  to  keep  these  consignment  goods  as  such,  —  as  my  property  un- 
til sold,  and  well  insured,"  obtains  a  loan  upon  a  pledge  of  the 
goods  from  one  who  is  ignorant  of  the  letter,  and  makes  no  in- 
quiry concerning  the  ownership  of  the  pledgor  or  his  authority 
over  the  goods,  the  pledgee  cannot  hold  them  as  against  the 
owner. ^ 

342.  At  common  law  a  factor  could  not  make  a  pledge  by- 
indorsement  and  delivery  of  a  bill  of  lading  or  other  document 
of  title  representing  his  principal's  goods,  although  the  indorsee 
was  ignorant  of  the  fact  that  he  held  the  goods  as  a  factor  or 
agent  to  seli.^  He  could  not  pledge  them  unless  his  principal 
had  given  him  such  authority  over  them  that  he  could  deal  with 
them  as  his  own.^ 

The  rule  is  otherwise  under  statutes  which  give  to  bills  of  lad- 
ing a  negotiable  character  ;  or  under  statutes  which  make  special 
provision  for  the  protection  of  indorsees  of  factors  in  possession 
of  bills  of  lading,  with  power  to  sell  the  goods;  but  under  the 

1  Patterson  v.  Tash,  2  Stra.  1178;  Co.  v.  Lowell  (Cal.  1882),  9  Pac. 
Daubigny    v.   Duval,  5    T.    R.    604;     Coast  L.  J.  498. 

Lamb  v.  Attenborough,   1  Best  &  S.  *  Newsom  v.  Thornton,  G  East,  17; 

831;   First  Nat.  Bank  v.  Shaw,  61  N.  Martini    v.  Coles,    1     M.  &    S.    140; 

Y.  283;  Barnard  v.  Campbell,  55  N.  Guichard  v.  Morgan,  4  Moore,  36. 

Y-456.  5  Boyson    v.  Coles,  6   M.  &  S.   14; 

2  Niekerson  v.  Darrow,  5  Allen  Michigan  State  Bank  v.  Gardner,  15 
(Mass.),  419.  Gray  (Mass.),  362. 


Chicago   Taylor    Printing    Press 


269 


§  342.]  PLEDGES   BY  FACTORS. 

factors'  acts,  an  agent  who  is  not  authorized  to  sell  the  goods 
represented  by  a  bill  of  lading  or  warehouse  receipt  in  his  pos- 
session cannot  pledge  the  goods  by  a  transfer  of  such  document- 
ary title.-^ 

The  statute  of  Missouri  on  this  subject  makes  a  warehouse 
receipt  or  bill  of  lading  transferable  by  indorsement  and  declares 
the  transferee  to  be  the  owner  of  the  goods  "  so  far  as  to  give 
validity  to  any  pledge,  lien  or  transfer  "  made  on  the  faith  thereof, 
but  at  the  same  time  impliedly  restricts  any  pledge  which  a  fac- 
tor can  make  of  such  receipt  or  bill  of  lading  to  the  case  of  a 
pledge  for  the  amount  of  his  advances  and  charges,  or  to  one 
authorized  in  writing  by  his  consignor.^  Judge  Treat,  delivering 
the  opinion  of  the  court  to  this  effect,  said  :  "  It  may  be  urged 
that  a  practical  difficulty  will  arise  in  ascertaining  the  correct 
amount  of  advances  and  charges  ;  but  if  that  be  so,  the  consignor 
may  reply  with  greater  force  that  his  property  ought  not  to  be 
pledged  for  more  than  the  factor's  lien  thereon.  The  pledgee  is 
not  obliged  to  loan  money  and  receive  the  pledge  as  collateral. 
If  he  is  willing  to  lend  to  the  factor  he  can  receive  as  collateral 
a  warehouse  receipt  to  the  extent  that  the  factor  has  a  lien  on 
the  goods  represented  ;  in  other  words,  the  factor  can  pledge  what 
belongs  to  him, — his  lien,  —  and  not  his  principal's  interest  or 
rights  of  property.  This  may  be  questionable  legislation,  inas- 
much as  it  enables  the  pledgee  to  sell  the  goods  if  not  redeemed, 
instead  of  the  agent,  in  whose  personal  skill  and  judgment  alone 
the  consignor  confided.  ...  If  a  stranger  will  take  a  pledge 
of  goods  from  a  factor  without  inquiry,  the  consignor  is  not  to 
suffer.  Whether  he  knows  or  not  that  the  person  from  whom 
he  takes  the  pledge  is  a  mere  factor  does  not  change  the  rule. 
A  consignor's  property  cannot  be  taken  from  him  without  his 
consent.  A  pledgee  is  bound  at  his  peril  to  inform  himself  of 
the  facts.  The  rule  as  to  sales  in  the  ordinary  course  of  busi- 
ness is  one  thing,  and  as  to  pledges  entirely  different.  .  .  .  The 
factor  cannot  pledge  the  goods  of  his  principal,  except  to  the 
amount  and  in  the  manner  stated.  He  has  no  authority  either 
at  common  law  or  by  statute,  to  borrow  money  generally  on 
the  pledge  of  the  warehouse  receipt;  nor  can  the  pledgee  pro- 
tect himself  against  the  demand  of  the  consignor,  except  to  the 

1  Stollenwerck  v.  Thacher,  115  2  gtgiger  y.  Third  Nat.  Bank  (C.  C. 
Mass.  224.  Mo.  1881),  6  Fed.  Rep.  569,  577. 

270 


THE  factors'  acts,  THEIR  APPLICATION  AND  EFFECT.     [§§  343,  344. 

extent  of  such  advances  and  charges.     The  pledgee  may  receive  a 
transfer  of  the  factor's  lien,  and  nothing  more." 

343.  A  factor  has  power  to  pledge  a  bill  of  lading  or 
warehouse  receipt  made  negotiable  by  statute,  where  he 
has  taken  the  receipt  in  his  own  name,  and  indorsed  it,  so  that 
one  dealing  with  him  on  the  faith  of  his  apparent  legal  title  will 
acquire  a  good  title  as  against  the  principal ;  and  notice  to  the 
pledgee  that  the  factor  holds  the  receipt  for  his  principal,  is  not 
notice  of  any  limitation  of  his  power  to  pledge  it ;  though  a 
pledge  of  it  would  not  bind  the  principal  if  the  pledgee  had 
notice  that  the  pledge  was  made  in  violation  of  the  principal's 
instructions.^  In  great  commercial  communities  the  rules  of  the 
common  law  with  reference  to  pledges  by  factors  have  gradually 
yielded  to  the  necessities  of  modern  trade  and  new  methods  of 
conducting  business.  But  legislation  has  been  necessary  to  effect 
a  change  of  the  law,  and  so  strong  has  been  the  judicial  preference 
for  the  rules  of  the  common  law  that  the  legislation  intended  to 
change  them  has  sometimes  been  construed  so  as  to  defeat  the 
object  intended  to  be  accomplished  by  it.  But  in  England,  and 
in  several  of  the  more  important  commercial  states  of  our  own 
country,  legislation  has  effected  an  important  change  in  respect 
to  the  powers  of  factors,  in  favor  of  persons  dealing  with  them 
in  good  faith.  The  rule  has  become  quite  generally  established 
that  a  factor  intrusted  with  the  insignia  of  title,  may  sell  or 
pledge  the  property  and  effectually  bind  his  principal.  In  refer- 
ence to  warehouse  receipts,  legislation  has  in  several  states  in 
another  way  protected  bond  fide  holders  of  such  receipts,  and 
that  is  by  making  them  negotiable  with  the  qualities  of  negoti- 
able paper. 

344.  An  agent  not  intrusted  by  his  principal  with  the 
power  to  sell  is  not  a  factor  within  the  factors'  acts.2  A 
tobacco  manufacturer  bought  of  a  dealer  in  tobacco  a  large 
quantity  of  tobacco,  then   lying  in   bond  in  the  latter's  name. 

^  Price  V.  Wisconsin  Marine  &  Fire  268;    aOirraed,  4  C.  P.  93;   Monk  v. 

Ins.  Co.  43  Wis.  2G7;  Rice  v.  Cutler,  Whittenhury,  2  B.  &  Ad.  484;  Cart- 

17  Wis.  351.  Wright  v.  Wilmerding,   24   N.  Y.  521, 

=*  Cole    V.    North    Western    Bank,  528;    Nickcrson   v.  Darrow,  5    Allen 

L.  R.  9  C.   P.  470;    affirmed,   10  lb.  (Mass.),  419 ;  Stollenwerck  u.Thacher, 

354;  Fuentes  v.  Montis,  L.  R.  3  C.  P.  115  Mass.  224. 

271 


§  344.]  PLEDGES   BY  FACTORS. 

The  price  was  paid,  but  the  tobacco  was  allowed  to  remain  in 
the  dock,  to  be  forwarded  as  the  purchaser  might  want  it  for  the 
purposes  of  his  business,  with  an  understanding  that  the  tobacco 
was  to  be  cleared  by  the  seller,  and  dispatched  to  the  purchaser 
free  of  any  charge  for  commission,  the  latter  remitting  to  the 
seller  the  amount  of  the  duty  and  dock  charges.  This  was  the 
usual  way  of  dealing  in  the  tobacco  trade.  For  this  purpose 
the  tobacco  was  allowed  to  remain  in  the  name  of  the  seller 
in  the  dock  books,  and  he  retained  the  dock-warrants.  The 
seller  afterwards  representing  the  tobacco  to  be  his  own  prop- 
erty, pledged  it  as  security  for  a  loan,  handing  to  the  pledgee 
the  dock-warrants,  and  causing  the  tobacco  to  be  transferred  to 
the  pledgee's  name  in  the  dock  books.  The  seller  shortly  after- 
wards absconded,  and  was  adjudged  bankrupt.  The  purchaser 
demanded  the  tobacco  of  the  pledgee,  who  claimed  to  retain  it, 
either  on  the  ground  that  the  purchaser  had  armed  the  pledgor 
with  an  ostensible  authority  to  deal  with  the  goods  as  his  own, 
or  that  he  was  intrusted  with  the  tobacco,  or  the  documents  of 
title,  with  authority  to  pledge  or  sell  it  within  the  factors'  acts. 
But  it  was  held  that  the  pledgor  was  not  intrusted  with  the 
tobacco,  as  factor  or  agent,  for  sale,  but  only  to  clear  and  for- 
ward it  to  the  purchaser  when  required,  and,  consequently,  that 
he  had  no  authority  to  sell  or  to  pledge  it ;  and  it  was  further 
held,  that,  looking  at  the  usage  of  the  trade,  the  plaintiff  had 
not  given  any  ostensible  authority  to  the  pledgor  to  pledge  the 
tobacco.^ 

This  decision  was  affirmed  on  appeal,^  Chief  Justice  Cockburn, 
in  delivering  judgment,  saying :  "  The  case  for  the  plaintiff  rests 
on  the  general  proposition  of  law,  —  which,  as  a  general  proposi- 
tion cannot  be  contested,  —  that  the  mere  possession  of  the  prop- 
erty of  another,  without  authority  to  deal  with  the  thing  in 
question  otherwise  than  for  the  purpose  of  safe  custody,  as  was 
the  case  here,  will  not,  if  the  person  so  in  possession,  takes  upon 
himself  to  sell  or  pledge  to  a  third  party,  divest  the  owner  of 

1  Johnson  v.  Credit  Lyonnais,  2  once  proceeded  to  settle  the  law  to 
C.  F.  D-   224.  ,  the  contrary,  by  applying  the  protec- 

2  S.  C.  3  C.  P.  D.  32.  tion  given  by  the  factors'  acts  to  per- 
As  soon  as  this  decision   appealed     sons    acquiring  title  from  agents,   to 

from  was  made  public,  the  legislature,     innocent  parties  purchasing  or  making 
by  statute  (40  &  41  Vict.   c.  39),  at     advances  in  such  cases  as  the  present. 
272 


THE    factors'   acts,   THEIR   APPLICATION  AND   EFFECT.      [§  345. 

his  rights  as  against  the  third  party,  however  innocent  in  the 
transaction  the  latter  party  may  have  been."  After  referring  to 
several  cases,^  which  at  first  sight  appear  to  favor  the  view  that 
the  plaintiff,  by  leaving  the  possession  of  the  goods  in  the  hands 
of  the  seller,  had  enabled  him  to  pledge  them  as  his  own,  and 
therefore  was  estopped  from  denying  his  right  so  to  deal  with 
them,  the  learned  judge  continued  :  "Sitting  here  in  a  Court  of 
Appeal,  I  feel  myself  at  liberty  to  say  that  these  authorities  fail 
to  satisfy  me,  that,  at  common  law,  the  leaving  by  a  vendee 
goods  bought,  or  the  documents  of  title,  in  the  hands  of  the 
vendor  till  it  suited  the  convenience  of  the  former  to  take  pos- 
session of  them,  would,  on  a  fraudulent  sale  or  pledge  by  the 
party  so  possessed,  divest  the  owner  of  his  property  or  estop  him 
from  asserting  his  right  to  it.  If  this  had  been  so,  there  would 
have  been,  as  it  seems  to  me,  no  necessity  for  giving  effect  by 
statute  to  the  authorized  sale  of  goods  by  a  factor." 

345.  An  agent  who  can  pledge  or  sell  under  the  factors' 
acts  must  be  one  -whose  business  properly  ends  in  a  sale  of 
goods,  or  in  receiving  payment  therefor.  If  an  agent  of  this 
kind  is  intrusted  in  that  capacity  with  goods  he  can  make  an 
effectual  pledge  of  them,  in  the  absence  of  ba(i  faith  on  the  part 
of  the  pledgee.  Thus  a  merchant  in  London  agreed  with  a  tanner 
in  Canada  to  pay  him  a  stipulated  price  for  tanning  hides  to  be 
forwarded  to  him  by  the  merchant,  and  to  be  sent  back  to  him 
when  tanned.  The  merchant  accordingly  sent  him  a  large  num- 
ber of  hides  which  he  tanned,  and  then  pledged  to  the  Toronto 
Bank  for  advances  obtained  on  his  own  account,  the  bank  act- 
ing in  ignorance  of  the  above  agreement.  The  merchant  hav- 
ing tendered  the  amount  due  the  tanner  under  the  agreement, 
brought  suit  against  the  bank  to  recover  possession  of  the  goods. 
The  defence  was  that  the  tanner  carried  on  the  business  of  a 
factor,  warehouseman,  and  consignment  agent  as  well  as  that  of  a 
leather  tanner,  and  that  in  the  former  character  he  had  pledged 
the  goods  in  question.  The  construction  of  the  contract  de- 
pended upon  Canadian  law,  and  the  factors'  clause  of  the  Cana- 
dian Code,  which  contains  some  peculiar  provisions ;  but  th& 
House  of  Lords  held  that  under  the  circumstances  of  the  case, 

1  Pickering  v.  Busk,   15  East,  38;     Boyson  v.  Coles,  6  M.  &  S.  U;  Dyer 

V.  Pearson,  3  B.  &  C.  38. 

18  273 


§  3-45.]  PLEDGES   BY   FACTORS. 

the  tanner  could  not,  under  any  law,  English  or  Canadian,  claim 
to  be  a  factor  or  agent  of  the  merchant,  entitled  to  pledge  his 
goods,  and  that  consequently,  the  bankers  could  not  set  up  any 
title  to  the  goods,  as  derived  from  him,  against  the  merchant  who 
was  the  real  owner. ^  The  Lord  Chancellor  in  delivering  judg- 
ment said  :  "  It  is  admitted  that,  as  long  as  the  tanning  opera- 
tion was  going  on,  there  was  no  agency  at  all  within  the  mean- 
ing of  these  factors'  clauses.  But  it  is  contended,  that  because 
the  tanner,  who  had  a  lien  on  the  goods  for  his  labor,  also  under- 
took to  procure  freights  and  send  the  leather  home,  which  he 
did,  taking  for  his  own  security  bills  of  lading  made  out  in  his 
name,  which  he  sent  to  his  agents  in  Liverpool,  this  made  him, 
in  that  stage  of  the  transaction,  after  the  tanning  was  done,  and 
when  he  was  sending  the  goods  home  under  his  contract  to  the 
owner  in  England,  an  agent  within  the  meaning  of  these  factors' 
clauses.  My  Lords,  it  appears  to  me  that  such  a  view  of  the 
word  '  agent '  would  be  directly  at  variance  with  the  authorities, 
which,  as  far  as  I  can  see,  are  for  this  purpose  quite  as  applicable 
upon  the  construction  of  the  words  in  the  Canadian  Code  as  upon 
the  construction  of  the  corresponding  words  in  the  English  Acts. 
The  authorities  are  thus  summed  up  by  Mr.  Justice  Willes  in 
the  case  of  Heyman  v.  Flewker.^  He  says,  after  referring  to  cer- 
tain cases :  '  All  that  these  cases  decide  applicable  to  the  present 
purpose  may  be  stated  thus :  that  the  term  "  agent"  does  not  in- 
clude a  mere  servant  or  caretaker,  or  one  who  has  possession  of 
goods  for  carriage,  safe  custody,  or  otherwise,  as  an  independent 
contracting  party,  but  only  persons  whose  employment  corre- 
sponds to  that  of  some  known  kind  of  commercial  agent  like  that 
class  (factors)  from  which  the  act  has  taken  its  name.'  " 

A  person  intrusted  with  furniture  to  store  in  his  own  house, 
though  in  one  sense  an  agent  of  the  owner  is  not  an  agent  within 
the  meaning  of  the  factors'  act,  who  can  make  a  good  pledge  of 
the  property.^  A  clerk  who  is  in  possession  of  delivery  orders 
belonging   to  his  employer  is    not   an   agent    so  intrusted  with 

1  City  Bank  v.    Barrow,  L.  R.    5  by  Lord  Blackburn,  delivering  a  con- 

App.  Cases,  664.  firmatory  opinion. 

The  case  of  Cole  v.  North  Western         2  13  q^  b_   (j^.  s.)  519;  32  L.J. 

Bank,  L.  R.  9  C.  P.  470,  affirmed  10  (C.  P.)  132. 
lb.  354,  was  referred  to  and  approved        ^  Wood  v,  Rowcliffe,  6  Hare,  183. 

274 


THE  factors'  acts,  THEIR  APPLICATION  AND  EFFECT.   [§  346. 

goods  or  with  the  documentary  title  to  them,  that  he  can  make  a 
valid  pledge  of  them.^ 

346.  One  is  not  by  virtue  of  his  general  employment  as  a 
broker  authorized  to  pledge  goods  intrusted  to  him  in  an- 
other capacity.  Thus  if  one  who  is  a  broker,  and  is  usually 
employed  to  sell  goods,  also  carries  on  an  independent  business 
as  a  warehouse-keeper,  and  he  is  intrusted  with  goods  for  the 
purpose  of  warehouseing  only,  he  is  not  "  intrusted  "  with  them 
as  an  agent  within  the  meaning  of  the  factors'  act.^  Mr.  Jus- 
tice Blackburn,  in  delivering  judgment  upon  appeal  with  refer- 
ence to  the  purpose  of  the  factors'  act,  said  :  "  We  do  not  think 
that  it  was  wished  to  make  the  owner  of  goods  lose  his  property, 
if  he  trusted  the  possession  to  a  person  who  in  some  other  capac- 
ity made  sales,  in  case  that  person  sold  them.  If  such  was  the 
wish  of  those  who  framed  the  act,  we  think  they  have  not  used 
language  sufficient  to  express  an  intention  so  to  enact." 

Thus  where  a  consignee  of  wool  for  sale  intrusted  it  to  another 
as  a  warehouseman  for  the  purposes  of  sale,  and  with  authority 
as  broker  to  receivS  offers  for  and  to  negotiate  sales  of  the  same, 
to  be  reported  to  and  settled  by  the  consignee,  but  with  no  au- 
thority to  make  and  conclude  sales  himself,  it  was  held  that  he 
could  not  make  a  valid  pledge  of  the  wool  for  his  own  purposes  ; 
for  he  was  neither  a  "  factor  or  other  agent  intrusted  with  the 
possession  of  merchandise  for  the  purpose  of  sale,"  nor  "  a  person 
intrusted  with  merchandise  and  having  authority  to  sell  or  con- 
sign the  same,"  within  the  meaning  of  the  factors'  act.'^  The 
Supreme  Court  of  Massachusetts  so  deciding  said:*  "A  ware- 
houseman, who  is  also  a  broker  with  authority  only  to  receive 
offers  for  merchandise  stored  with  him  as  a  warehouseman  and  re- 
port them  to  his  principal,  who  concludes  the  sale,  if  any  is  made, 
is  not  within  the  provisions  of  either  of  these  sections."  A  pledge 
made  by  such  warehouseman  without  any  authority  from  the  con- 
signee and  without  any  acts  done  by  the  plaintiff,  whereby  the 
pledgee  was  misled  into  the  belief  that  the  pledgor  had  any  such 

1  Lamb  v.  Attenborough,  1  B.  &  S.  3  G.  S.  of  Mass.  1860,  c.54,  §§  2,  3, 

831.  P.  S.  1882,  c.  71,  §§1,3. 

^  Cole  V.  North  Western  Bank,  L.  ^  Thacher  v.  Moors,  134  Mass. — ; 

R.  9  C.  P.  470;  affirmed  on  appeal  S.  C.  Mass.  Law  Kep.  Apr.  VJ,  1883. 
10  lb.  354,  372. 

275 


§  846.]  PLEDGES   BY   FACTORS. 

authority,  whether  as  owner  or  otherwise,  is  invalid.  The  fact  that 
the  pledgee  found  the  wool  in  the  pledgor's  store,  which  he  knew 
was  used  by  the  pledgor  "  to  store  wool  as  a  warehouseman  for 
other  persons,  and  also  wool  belonging  or  consigned  to  himself," 
does  not  bring  the  case  within  the  decisions  upon  ostensible  or  ap- 
parent ownership.  Neither  the  railroad  receipt  nor  the  invoice 
was  delivered  to  the  pledgor,  but  both  were  retained  by  the  con- 
signee, and  the  pledgor,  so  far  as  it  appeared  to  the  pledgee,  was 
no  more  the  ostensible  owner  of  this  wool  than  of  any  other  wool 
stored  with  him  as  warehouseman.  The  assertion  of  the  pledgor 
that  he  owned  the  wool  was  incompetent  as  evidence  of  ownership 
against  the  consignee,  and  could  not  enlarge  the  pledgor's  authority 
as  agent. 1  In  a  suit  by  the  consignee  against  such  pledgee  for  a 
conversion  of  the  wool,  it  was  further  held  that  the  consignee's 
rights  were  not  affected  by  the  fact  that  the  pledgor  was  without 
the  knowledge  of  the  consignee  a  general  owner  of  the  property. 
The  wool  was  originally  bought  by  another  person,  upon  joint 
account  with  the  pledgor  under  an  arrangement  between  them 
by  which  the  former  bought  the  wool  of  farmers  in  Vermont 
with  money  furnished  by  the  pledgor,  who  was  to  have  control 
of  the  sale  of  it,  and  the  profits  were  to  be  divided  between  them. 
Under  this  arrangement  the  pledgor  procured  the  advances  from 
the  consignee,  and  furnished  other  money  of  his  own  with  which 
to  pay  for  the  wool.  Under  the  circumstances  the  pledgor  was 
regarded  as  estopped  by  his  acts  from  setting  up  against  the  plain- 
tiff any  title  to  the  wool  inconsistent  with  the  validity  of  the  lien 
acquired  by  the  plaintiff  as  consignee.  "  The  plaintiff's  interest 
in  the  merchandise,"  say  the  court,^  "  was  that  of  a  consignee  for 
sale  who  had  made  advances  upon  it,  and  his  rights  and  duties 
in  most  respects  are  well  defined  in  the  law.  The  possession  of 
a  warehouseman,  although  he  has  a  lien  for  his  charges,  is  not 
inconsistent  with  the  possession  of  the  consignee,  and  it  is  in  ac- 
cordance with  the  usage  of  commission  merchants  to  store  mer- 
chandise consigned  to  them  in  warehouses.  A  consignee's  rights 
in  the  merchandise  are  not  lost  by  putting  the  merchandise  in 
the  warehouse  of  another  person  to  be  stored  until  it  can  be  sold. 
The  plaintiff  never  intended  to  relinquish  his  lien,  or  even  to  put 
the  property  into  the  possession  of  the  owner ;  but  it  is  argued 

1  Thacherr.  Moors,  134  Mass. — ,  per        ^  Thatcher    v.    Moors,    supra,   per 
Field,  J.,  substantially  in  his  language.     Field,  J. 

276 


THE  FACTORS'  ACTS,  THEIR  APPLICATION  AND  EFFECT.    [§§  347,  348. 

that,  as  he  did  intend  to  put  it  into  the  possession  of  the  pledgor, 
who  was  the  owner  although  he  did  not  know  it,  this  union  of 
possession  and  general  property  in  the  pledgor  enabled  him  to 
convey  a  good  title  to  an  innocent  pledgee  for  value.  No  decided 
case  has  gone  so  far  as  this.  To  hold  that  the  union  of  possession 
and  general  property  in  the  same  person,  however  acquired,  nec- 
essarily destroys  the  special  property  of  a  consignee  of  merchan- 
dise, would  enable  warehousemen  who  hold  merchandise  in  store 
for  commission  merchants  to  buy  in  the  title  of  their  consignors, 
and  thus  obtain  full  control  over  the  disposition  of  the  merchan- 
dise stored,  without  the  authority  or  knowledge  of  the  consignees. 
The  plaintiff  cannot  be  held  to  have  intended  that  the  pledgor 
should  exercise  any  of  the  rights  of  ownership  over  the  merchan- 
dise on  account  of  his  delivery  of  it  to  him,  because  he  did  not 
know  that  he  was  an  owner;  and  it  was  not  a  consequence 
naturally  to  be  expected  from  delivering  the  merchandise  to  him 
to  be  stored,  that  it  would  come  into  the  possession  of  the  general 
owner;  and  in  no  legal  sense  can  the  plaintiff  be  said  to  have  vol- 
untarily delivered  the  merchandise  into  the  hands  of  the  general 
owner." 

347.  An  agent  whose  authority  to  sell  has  been  revoked 
was  not  within  the  former  factors'  acts  of  England,  "  intrusted 
with  and  in  the  possession  of  goods,  or  of  the  documents  of  title  to 
goods."  He  could  not  make  a  valid  pledge  of  goods  which  had 
been  intrusted  to  him  for  sale,  but  which  he  had  wrongfully  re- 
tained against  the  will  of  his  principal.^  But  under  the  recent 
factors'  act^  the  revocation  of  authority  does  not  prejudice  the 
rights  of  bond  fide  purchasers  without  notice. 

348.  The  statutes  apply  only  where  the  relation  of  prin- 
cipal and  factor  or  agent  exists  between  the  real  owner  of 
the  bill  of  lading  and  the  person  having  the  bill  in  possession  ; 
where  the  latter  obtains  the  bill  by  or  with  the  consent  of  the 
owner,  and  where  the  factor  is  made  the  consignee.  Moreover 
they  apply  only  where  the  third  person  who  has  advanced 
money  to  the  factor  or  agent,  has  done  so  on  the  faith  of  such 
bill  of  lading."^ 

1  Fuentes  v.  Montis,  L.  it.  3  C.  P.  ^  First  Nat.  Bank  i'.  Shaw,  61  N. 
268;  affirmed  L.  K.  4  C.  P.  93.  Y.  283. 

2  40  &  41  Vict.  c.  30,  §  3.  277 


§  349.]  PLEDGES  BY  FACTORS. 

These  acts  have  no  application  in  cases  where  either  goods  or 
documents  of  title  have  been  obtained  from  the  owner  by  fraud, 
for  the  trickster  is  not  "  an  agent  intrusted  with  the  possession."  ^ 
But  if  the  owner  has  in  fact  intrusted  goods  or  the  documents  of 
title  to  one  as  his  agent  to  sell,  though  he  has  been  induced  to 
do  so  by  fraud,  a  pledge  by  the  agent  is  good.^ 

349.  The  relation  of  principal  and  factor  is  not  created  by 
the  mere  possession  of  a  bill  of  lading  in  the  name  of  a  third 
person,  though  that  circumstance  may  raise  a  presumption  of 
such  relation.  The  fact  of  the  relation  is  to  be  proved  aliunde? 
In  this  as  in  other  cases  while  possession  is  primd  facie  evidence 
of  ownership,  yet  any  one  dealing  with  a  person  in  possession  of 
personal  property  upon  the  mere  evidence  which  possession  af- 
fords, takes  upon  himself  the  risk  that  the  property  really  be- 
longs to  another  ;  and  the  burden  rests  upon  him  to  prove  that 
the  true  owner  had  authorized  the  person  in  possession  to  sell  or 
pledge  the  property.^  "It  is  hardly  necessary  to  say  that  the 
title  of  the  true  owner  of  personal  property  cannot  be  impaired 
by  the  unauthorized  acts  of  one  not  the  owner.  Taking  posses- 
sion of  the  property,  shipping  it,  obtaining  bills  of  lading  from 
the  carriers,  indorsing  away  the  bills  of  lading  or  even  selling  the 
property  and  obtaining  a  full  price  for  it,  can  have  no  effect  upon 
the  right  of  the  owner.  Even  a  bond  fide  purchaser  obtains  no 
right  by  a  purchase  from  one  who  is  not  the  owner,  or  not  author- 
ized to  sell."  ^  Possession  of  a  bill  of  lading  does  not  constitute 
title,  nor  does  it  of  itself  affect  the  operation  of  the  general  rule 
that  property  in  chattels  cannot  be  transferred  except  by  the 
owner  or  by  one  having  authority  from  him.^ 

If,  therefore,  an  intermediate  consignee  named  in  a  bill  of  lad- 
ing having  power  simply  to  receive  and  forward  the  property, 
without  authority  issues  a  new  bill  of  lading  to  one  not  the  con- 

1  Kingsford  v.  Merry,  1  H.  &  N.  s  First  Nat.  Bank  v.  Shaw,  61  N. 
503  ;  Hardman  v.  Booth,  1  H.  &  C.  Y.  283  ;  Cook  v.  Beal,  1  Bosw.  N.  Y. 
803.  497. 

2  Sheppard  v.  Union  Bank,  7  H.  &  *  Moore  v.  Robinson,  62  Ala.  437, 
N.  661  ;  Baines  v.  Swainson,  4  B.  &  per  Stone,  J.;  Barnard  v.  Campbell, 
S.  270.     See  in  this  connection  Vick-  55  N.  Y.  456. 

ers  V.  Hertz,  L.  R.,  2  H.  L.  Sc.  113,  ^  The  Idaho,  93  U.  S.  575,  583,  per 

and  remarks  upon  it  by  Blackburn,  J.,  Strong,  J. 

in  Cole  v.  North  Western  Bank,  L.  R.  ^  Barnard  v.  Campbell,  supra. 
10  C.  P.  354,  374. 

278 


THE   factors'   acts,   THEIR    APPLICATION   AND   EFFECT.      [§  350. 

sigiiee  named  in  the  original  bill,  the  person  so  receiving  such 
new  bill  does  not  thereby  become  the  factor  or  agent  of  the 
owner,  and  the  title  of  the  latter  is  not  affected  by  any  con- 
tract made  by  such  holder  of  the  bill  of  lading  for  advances  made 
on  the  faith  of  it.^ 

Accordingly  if  the  owner  of  cotton  authorize  a  person  to  ship 
it  in  the  owner's  name,  and  in  his  name  only,  the  agent  cannot 
by  shipping  the  cotton,  and  taking  a  bill  of  lading  in  his  own 
name,  and  negotiating  it,  charge  the  cotton  with  the  payment  of 
advances  made  on  the  faith  of  it.^ 

If  a  bill  of  lading  indorsed  in  blank  be  sent  by  the  owner  of 
the  goods  to  a  special  agent  with  positive  instructions  to  hold  the 
bill  of  lading  until  the  draft  drawn  against  it  be  paid,  he  cannot 
by  transferring  the  bill  of  lading  to  another  confer  upon  him 
any  title  in  the  goods  as  against  the  principal.^ 

350.  One  taking  a  pledge  from  a  factor  with  knowledge 
that  he  is  acting  contrary  to  his  principal's  instructions,  and 
making  a  wrongful  use  of  the  money  so  obtained,  is  responsible 
to  the  principal  for  such  wrongful  application  of  the  money. 
Thus  where  a  principal  executed  to  his  factor  his  promissory 
notes,  and  shipped  goods  to  him  under  instructions  to  sell  the 
goods  and  apply  the  proceeds  to  the  payment  of  the  notes,  and 

1  First  Nat.  Bank  v.  Shaw,  61  N.  enables  owners  of  property  on  the 
Y.  283,  304.  "  Considerable  stress  great  transportation  lines  of  inland 
was  laid  at  the  argument,  by  counsel  commerce  to  secure  it  from  the  frauds 
on  either  side  of  the  case  on  the  great  and  depredations  of  mere  custodians 
consequences  to  commerce  of  a  de-  and  bailees  in  whom  no  special  confi- 
cision  in  this  cause  adverse  to  their  dence  is  reposed.  While  commercial 
respective  views.  Finding  the  prin-  convenience  must  be  respected,  the 
ciples  of  law  clearly  settled,  we  are  rights  of  property  must  not  be  sacri- 
bound  to  administer  them  as  they  have  ficed.  ■'.  .  .  The  true  interests  of  com- 
come  down  to  us  from  our  predeces-  merce  demand  that  the  claims  under 
sors.  "We,  however,  believe  that  a  de-  bills  of  lading  and  other  such  instru- 
cision  cannot  on  the  whole,  be  adverse  ments  should  be  scrupulously  pro- 
to  commercial  interests  which,  while  it  tected,  since  commerce  will  not  flour- 
recognizes  the  convenience  of  mer-  ish  where  the  rights  of  property  are 
chants  and  the  great  value  and  im-  not  respected."  Per  Dwight,  C. 
portance  of  the  factors'  act,  requires  ^  Moore  v.  Robinson,  G2  Ala.  437  ; 
of  those  who  advance  money  on  com-  and  see  Covill  v.  Hill,  4  Denio  (N. 
mercial  documents  the  observance  of  Y.),  323. 

reasonable  diligence  and  the  obliga-  ^  Stollenwerck     v.     Thacher,     115 

tion  to  make  reasonable  inquiry,  and  Mass.  224. 

279 


§§  351,  352.]  PLEDGES   BY   FACTORS. 

the  factor  pledged  the  notes  together  with  the  goods  as  collateral 
for  advances  to  a  bank  which  had  notice  that  the  pledgor  was 
the  factor  of  the  maker  of  the  notes,  it  was  held  that  the  bank 
"was  bound  to  apply  the  proceeds  of  the  goods  to  the  payment  of 
the  notes ;  and  that  in  an  action  by  the  bank  against  the  maker, 
the  fact  that  the  misapplication  of  the  loans  obtained  was  known 
to  the  bank,  constituted  a  good  defence.^ 

Under  the  factors'  act,^  one  dealing  with  a  factor  with  notice 
that  he  is  not  the  actual  owner  of  the  goods  offered  in  pledge  is 
not  entitled  to  the  protection  of  the  act.  He  is  not  only  debarred 
of  such  protection  by  positive  knowledge  of  such  fact,  but  also 
by  knowledge  of  circumstances  from  which  he  must,  as  a  reason- 
able man,  have  known  that  the  goods  did  not  belong  to  the 
factor.^ 

351.  A  factor  is  bound  to  follow  the  instructions  of  his 
principal  as  to  terms  of  sale,  although  he  has  made  advances 
upon  the  goods,  unless  the  principal,  after  reasonable  notice,  fails 
to  pay  such  advances.^  But  if  the  consignor  after  such  notice 
and  a  reasonable  time  neglects  or  refuses  to  repay  the  advances, 
the  consignee  has  a  right  to  reimburse  himself  by  selling  the 
goods  at  a  fair  market  price,  though  this  be  below  the  price  orig- 
inally limited.^ 

352.  A  factor  may  make  successive  pledges  of  the  same 
property,  until  its  full  value  is  exhausted,  provided  he  make  suf- 
ficient delivery  of  the  property,  or  of  the  evidence  of  title  to  it. 

^  St.  Loi^is  Nat.  Bank  v.  Ross,  9  -with  the  understanding  of  the  par- 
Mo.  App.  399,  ties,  as  it  must  be  presumed  to  have 

2  As  for  instance  that  of  6   Geo.  4,  been  when  the  advances  were  made  ; 

c.  94,  §  2  ;  but  otherwise  under  act  of  and  it  would  enable   the  plaintiff  to 

1842,  5  &  6  Vict.  c.  39,  §  1,  impair   the   defendant's    security,  at 

2  Evans  «;.  Truman,  1  Moo.  &  R.  10.  his  own  will  and  pleasure  for  an  un- 

*  Hilton    V.  Vanderbilt,   8^    N.  Y.  Hmited  time,  if  he  were  disposed  so 

591  ;  Marfield  v.  Goodhue,  3  N.  Y.  62.  to  do.    To  sanction  such  a  right  would 

See  Brown  v.  M'Gran,  14  Pet.  479,  495.  operate  injuriously  on  the  interests  of 

s  Parker    v.    Brancker,    22     Pick,  consignees,  and  would  check  the  con- 

(Mass.)  40,  46.     In  this  case,  Wilde,  tinuance  of  those  large  advances,  by 

J.,  speaking  of  the  power  claimed  by  the  aid  of  which  a  flourishing   trade 

the  consignor  to  control  the  pledgee's  has  been  carried  on,  for  years  past,  to 

right  of   sale  to  his  prejudice,  said:  the  great  profit  of  the  mercantile  com- 

"  Such  a  power  would  be  inconsistent  munity." 

280 


THE  factors'  acts,  THEIR  APPLICATION  AND  EFFECT.   [§  353. 

The  factors'  act  as  a  general  rule  protects  all  persons  who  deal 
with  a  factor,  while  he  is  acting  within  the  usual  and  recognized 
course  of  dealing  of  such  an  agent.  A  factor  after  depositing 
goods,  or  a  bill  of  lading  representing  the  goods,  as  security  for 
advances,  may  pledge  the  balance  of  the  net  proceeds  of  the 
goods  by  delivering  an  order  in  writing  upon  the  first  pledgee; 
and  such  order  when  assented  to  by  the  first  pledgee  makes  the 
pledge  effectual  against  the  consignor.  The  validity  of  such  a 
pledge  was  objected  to  as  not  being  within  the  factors'  act,  for 
two  reasons :  (1)  that  it  was  not  a  pledge  of  the  goods  in  the 
hands  of  the  factor,  but  only  of  the  surplus  moneys  arising  from 
the  sale ;  and  (2)  that  the  factor  had  not  at  the  time  of  the  second 
pledge,  possession  of  either  the  goods  or  documents  of  title,  both 
being  in  the  hands  of  the  first  pledgee.  The  Vice  Chancellor 
in  reply  to  this  argument  said  that  the  factors'  act  plainly  in- 
tended to  give  the  amplest  power  of  binding  the  goods  by  pledg- 
ing them  ;  that  if  a  factor  pledges  goods  for  half  their  value,  and 
then  pledges  them  again  for  the  remainder  of  their  value  it  would 
be  an  exceedingly  narrow  construction  to  say  that  he  is  not  at 
the  time  of  the  latter  pledge  in  possession  of  the  documents  and 
goods,  both  of  them  being  in  his  control  as  against  his  principal 
until  the  principal  withdraws  them  ;  and  that  the  plain  interpre- 
tation of  the  act  is  that  when  the  first  pledge  does  not  exhaust 
the  whole  value  of  the  goods  they  are  in  the  factor's  control,  be- 
ing in  the  possession  of  another  person  on  his  behalf,  to  the  ex- 
tent to  which  they  are  not  exhausted  by  the  previous  pledge  ;  for 
he  may  redeem  the  first  pledge  at  any  time,  and  the  goods  must 
be  regarded  as  in  his  possession  and  under  his  control,  subject 
only  to  the  payment  of  the  debt  secured  by  the  prior  pledge.  ^ 

353.  A  provision  of  a  factors'  act  that  the  consignor  shall 
be  deemed  the  true  owner,  so  far  as  to  give  the  consignee  a 
lien  for  advances  made,  applies  only  to  cases  in  which  the  con- 
signor is  the  owner  of  the  property,  or  consents  to  the  shipment 
in  the  name  of  another  person.^  Unless  the  owner  has  conferred 
upon  the  consignee  the  usual  indicia  of  ownership,  he  is  not  pre- 
vented from  pursuing  his  title  even  as  against  a  bond  fide  pur- 

1  Portalis  V.  Tetley,  L.  R.  5  Eq.  140.     N.  Y.  283  ;   Covill  v.  Ilill,  4  Den.  (N. 

2  Hazard  v.  Fis^ke,  18  Hun  (N.  Y.),  Y.)  323  ;  Saltus  v.  Evorett,  20  Wend. 
27  7  ;  First   Nat.  Bank    v.   Shaw,   01     (N.  Y.)  2G7. 

281 


§  353.]  PLEDGES  BY  FACTORS. 

chaser  or  pledgee.^  The  mere  neglect  of  the  true  owner  to  fortify 
his  position  by  taking  all  possible  precautions  against  a  fraud 
upon  his  rights  and  title  is  not  equivalent  to  a  voluntary  consent 
on  his  part,  to  a  sale  or  pledge  of  the  property  by  a  consignee 
who  fraudulently  assumes  to  sell  or  pledge  it.^ 

1  Barnard  v.  Campbell,  55   N.  Y.         2  Hazard  v.  Fiske,  18  Hun  (N.  Y.), 
456;    Ballard   v.   Burgett,  40   N.  Y.     277. 
314;  Austin  v.  Dye,  46  N.  Y.  500. 
282 


CHAPTER  IX. 

THE  DEBT   SECUEED. 

354.  Of  course  the  debt  secured  must  be  founded  on  a 
good  and  valuable  consideration  in  order  to  sustain  a  pledge. 
If  the  debt  be  without  consideration  the  pledge  cannot  be  en- 
forced. If  the  consideration  of  the  debt  be  an  illegal  or  immoral 
one  no  court  will  lend  its  aid  to  either  party  to  give  effect  to  the 
contract.  If  a  pledge  has  been  made  to  secure  such  a  debt,  the 
maxim,  in  pari  delicto  est  conditio  possidentis  is  applied  ;  so  that 
the  pledgor  cannot  recover  the  pledge  on  account  of  such  illegal- 
ity of  the  debt,  because  to  do  so  he  must  first  show  the  true 
character  of  the  deposit,  and  when  it  appears  that  this  secures  a 
debt  founded  on  an  illegal  consideration  to  which  the  pledgor  was 
himself  a  party,  he  is  precluded  from  obtaining  the  assistance  of 
the  law  to  recover  it  back.i 

A  pledge  voluntarily  made  to  secure  an  illegal  demand  cannot 
be  reclaimed  without  payment.  Thus  the  owner  of  a  watch 
having  given  it  in  pledge  to  secure  payment  for  a  debt  which  he 
is  not  legally  liable  to  pay,  as  for  instance  a  debt  for  the  use  of 
a  horse  and  wagon  on  Sunday  in  violation  of  a  statute,  cannot  re- 
cover it  without  payment  of  the  debt,  any  more  than  he  could 
recover  money  used  in  paying  such  a  debt.  "  In  all  such  cases, 
the  maxim,  potior  est  conditio  possidentis,  is  applicable."  ^ 

In  Louisiana  ^  the  code  provides  that  every  lawful  obligation 
may  be  enforced  by  the  auxiliary  obligation  of  pledge.  If  the 
principal  obligation  be  conditional,  that  of  the  pledge  is  con- 
firmed or  extinguished  with  it.  If  the  obligation  is  null,  so  also 
is  the  pledge.     The  obhgation  of  pledge  annexed  to  an  obligation 

1  Taylor  v.  Chester,  L.  R.  4  Q.  B.  in  a  brothel  kept  by  the  latter,  to  be 

309.   In  this  case  the  pledgor  broufrlit  there  consumed. 

an  action  to  recover  the  half  of  a  50Z.  2  j^jng  j;.  Green,  6   Allen  (Mass.), 

bank  note  pled^red   to  secure  a  debt  139. 

contracted  for  wine  and  suppers  sup-  «  R.  Civil  Code  1870,  p.  373,  Arts, 

plied  to  the  plaintiff  by  the  defendant  3136-3141. 

283 


§  355.]  THE   DEBT    SECURED. 

which  is  purely  natural,  is  rendered  valid  only  when  the  latter  is 
confirmed  and  becomes  executory.  Pledge  may  be  given,  not 
only  for  an  obligation  consisting  in  money,  but  also  for  one  hav- 
ing any  other  object ;  for  example,  a  surety.  Nothing  prevents 
one  person  from  giving  a  pledge  to  another  for  becoming  his 
surety  with  a  third.  A  person  may  give  a  pledge,  not  only  for 
his  own  debt,  but  for  that  of  another  also. 

One  who  pledges  property  as  security  for  the  obligation  of 
another,  cannot  withdraw  the  property  pledged  otherwise  than 
as  a  pledgor  for  himself  might  ;  and,  if  he  receives  from  the 
debtor  a  consideration  for  the  pledge,  he  cannot  withdraw  it 
without  his  consent.^ 

355.  The  debt  secured  by  a  pledge  is  determined  by  the 
contract  of  the  parties.  The  particular  contract  determines 
their  rights.  The  debt  secured  may  be  one  already  existing, 
one  arising  at  the  time  of  the  transaction,  or  one  to  arise  in  the 
future.  The  mere  existence  of  a  previous  debt  from  the  pledgor 
to  the  pledgee  does  not  make  the  pledge  a  security  for  that  debt, 
if  the  agreement  upon  which  the  pledge  was  made  was  that  it 
should  secure  a  debt  created  at  the  time,  or  one  to  arise  from 
future  advances.^  On  the  other  hand,  a  pledge  made  for  a 
definite  loan  made  at  the  time,  cannot  be  held  as  security  for 
an  antecedent  debt,  nor  for  advances  which  the  pledgee  may 
afterwards  make  to  the  pledgor,  unless  it  be  agreed  that  the 
security  shall  be  so  applied.^ 

Thus,  where  one  pledges  goods  for  the  repayment  of  a  sum  of 
money  borrowed,  and  afterwards  pledges  another  lot  of  similar 
goods  to  the  same  person  for  another  loan,  if  there  is  nothing  to 
show  that  either  pledge  was  dependent  upon  the  other,  or  that 
when  the  first  pledge  was  made  a  future  loan  was  anticipated,  or 
that  when  the  second  loan  was  made  the  first  was  alluded  to, 
each  pledge  is  a  security  for  the  loan  made  at  the  time,  and  not 
in  any  respect  for  the  other  loan.^ 

1  So  by  statute  in  California,  Codes  ^  James's  Appeal,  89  Pa.  St.  54 ; 
and  Stats.  1876,  §  7994  of  Civ.  Code,  Robinson  v.  Frost.  14  Barb.  (N.  Y.) 
§  2994;  and  in  Dakota  Territory,  R.  536  ;  Ball  v.  Stanley,  5  Yerg  (Tenn.), 
Codes,  1877,  §  1765,  of  Civ.  Code.  199;  Phillips  v.  Thompson,   2  Johns. 

2  Baldwin  v.  Bradley,  69  111.  32;  Ch.  418;  Divver  v.  McLaughlin,  2 
Jarvis  v.  Rogers,  15  Mass.  389;  Allen  Wend.  (N.  Y.)  596. 

V.  Megguire,  15  Mass.  490.  *  Baldwin  v.  Bradley,  su2:)ra. 

284 


THE   DEBT    SECURED.  [§§  356,  357. 

356.  The  mere  existence  of  another  debt  from  the 
pledgor  to  the  pledgee,  does  not  authorize  the  latter  to 
detain  the  pledge  for  that  debt,  when  the  debt  or  trust 
•which  it  was  put  into  his  hands  to  secure  has  been  discharged, 
unless  there  be  some  just  presumption  that  such  was  the  inten- 
tion of  the  parties.!  When  the  contract  of  pledge  is  not  in  writ- 
ing, the  debt  secured  is  determined  by  the  verbal  contract  of  the 
parties  or  the  circumstances  of  the  transaction.  If  this  contract 
expressly  made,  or  implied  from  the  circumstances,  connects  the 
pledge  with  a  particular  debt,  another  debt,  whether  prior  or  sub- 
sequent, can  be  made  to  share  in  the  security  by  a  like  contract, 
but  only  upon  proof  of  such  a  contract. 

A  creditor  cannot,  upon  pajanent  of  the  debt  for  which  he 
holds  a  pledge,  retain  the  pledge  as  security  for  a  prior  or  other 
debt.2  He  has  no  lien  upon  specific  articles  of  personal  property 
of  his  debtor  which  happen  to  be  in  his  hands.  To  obtain  a  lien 
upon  them,  except  through  an  agreement  with  his  debtor,  he  must 
attach  them  for  his  debt,  just  as  any  other  creditor  would.^  If  a 
negotiable  note  be  indorsed  by  the  payee  to  a  bank,  as  collateral 
security  for  one  only  of  several  demands  on  which  he  is  liable, 
the  bank  has  no  lien  on  such  note  for  any  other  demand  against 
such  debtor.  If  the  bank  bring  suit  against  the  maker  of  such 
note,  after  the  demand  for  which  it  was  pledged  has  been  paid, 
the  maker,  acting  under  the  authority  of  the  indorsor,  may  suc- 
cessfully defend  against  the  right  of  the  bank  to  recover.^ 

357.  A  general  lien  for  a  balance  of  account  upon  col- 
laterals pledged  for  a  specific  loan  cannot  be  claimed  in  the 

1  Jarvis    v.    Rogers,  15  Mass.  389;  ardson,  4  Cow.  (N.  Y.)  607  ;  Wyckoff 

Baldwin  i;.  Bradley,  69111. 32;  Adams  v.    Anthony   (N.   Y.   Ct.    App.    Nov. 

V.  Sturges,  55  111.  468;  Teutonia  Nat.  1882),  27  Alb.  L.  J.  94;  Baldwin  v. 

Bank  of  New  Orleans  v.  Loeb,  27  La.  Bradley,  69  111.  32. 

Ann.  110;    St.  John  v.  O'Connel,  7  This  rule  applies  as  well  in  cases  in 

Port.  (Ala.)  466 ;   Schiffer  v.  Feagin,  which  the  United  States,  or  one  of  its 

51  Ala.  335;  Gilliat  v.  Lynch,  2  Leigh  revenue  officers,  is  pledgee,  as  in  cases 

(Va.),  493.  between     individuals.     Boughton     v. 

2.  Cowling   V.    Beachum,   7    Moore,  United    States,   12   Ct.    Claims,  330; 

465;  De  Bernales  v.  Fuller,  14  East.  State   Nat.  Bank   v.    United    States, 

590,  note;    Hathaway   v.    Fall  River  10  lb.  519,  545. 

Nat.  Bank,   131   Mass.  14;   Jarvis  v.  ^  Allen  v.  Megguire,  15  Mass.  490. 

Rogers,    supra,    Hall   v.  Marston,    17  *  Neponset  Bank  d.  Leland,  5  Met. 

Mass.    575;    Robinson    v.    Frost,   14  (Mass.)  259. 
Barb.  (N.  Y.)  536;  M'Neilly  v.  Rich- 

285 


§  358.]  THE   DEBT   SECURED. 

absence  of  an  express  agreement  or  general  usage.^  If  there  be  a 
usage  giving  to  persons  engaged  in  discounting,  buying,  advancing 
on,  or  selling  bills  or  notes,  a  lien  for  a  general  balance  against 
their  customer,  such  usage  should  be  proved.  Courts  have  taken 
notice,  judicially,  of  the  lien  of  bankers  who  are  strictly  such, 
and  who  are  dealers  in  money  ;  but  even  the  lien  of  a  banker 
does  not  exist  in  any  case  where  the  circumstances  are  inconsis- 
tent with  such  a  lien.^  "  When  there  is  no  right  to  detain  the 
possession  of  the  collateral,  after  a  specific  loan  upon  it  is  paid, 
there  can  be  no  lien  upon  it  after  payment  of  the  loan.  The 
right  of  the  debtor  to  pay  the  advance  and  take  up  a  collateral 
before  maturity,  is  not  reconcilable  with  a  right  in  the  creditor 
to  hold  on  after  payment  for  any  general  balance.  A  right 
of  possession  is  an  essential  ingredient  to  a  lien  upon  personal 
property."  ^ 

358.  But  of  course  security  taken  for  a  specific  loan  may 
by  agreement  of  the  parties  be  made  to  cover  other  loans 
made  at  other  times.^  The  fact  that  a  subsequent  loan  was  made 
upon  the  security  of  the  same  collaterals  already  held  by  the 
creditor  for  a  previous  loan,  may  be  shown  not  merely  by  the 
written  contract  of  the  parties,  but  by  proof  of  the  conversation 
and  circumstances  attending  the  making  of  the  subsequent  loan. 
The  parties  may  agree  upon  making  a  loan  upon  collaterals  that 
these  may  also  be  held  as  security  for  a  previous  loan,  whether 
that  be  secured  or  not.  If  such  an  agreement  be  proved  the 
security  applies  as  much  to  the  preexisting  debt  as  to  that  which 
was  incurred  at  the  time  of  the  transaction.^ 

If  one  is  indebted  to  another  in  several  distinct  obligations, 
and  transfers  property  in  pledge,  without  particularly  designating 
the    debts  which    it  shall  secure,  it  would  seem  that  the  cred- 

1  Vanderzeew.  Willis,  3  Bro.  C.  C.  338,  350;  Brandao  v.  Barnett,  3  C.  B. 

21  ;   Davis  v.  Bowsher,  5  T.  R.  488;  519. 

Medewe's  Trust,  in  re,  26  Beav.  588  ;  ^  Grant  v.  Taylor,  stqrra,  per  Van 

Jarvis  v.  Rogers,  15  Mass.  389  ;  Lane  Vorst,  J. 

V.    Bailey,    47    Barb.    (N.    Y.)    395  ;  ^  Buchanan  v.  International  Bank, 

Wyckoff  V.  Anthony,  9  Daly  (N.  Y.)  78  111.  500  ;   Van  Blarcom  v.  Broad- 

417;  6\    C.    (N.   Y.    Ct.    App.  Nov.  way  Bank,  9  Bosw.  (N.  Y.)  532;  S. 

1882),    27  Alb.  L.  J.  94  ;  15    N.   Y.  C.  37  N.  Y.  540  ;  Smith  v.  Dennison, 

Weekly  Dig.  461.  101  111.  531. 

^  Grant  v.  Taylor,  3  J.  &  S.  (N.  Y.)  ^  Smith  v.  Dennison,  supra. 

286 


THE  DEBT   SECURED.  [§§  359,  360. 

itor  would  be  entitled  to  apply  it  as  he  would  a  payment  made 
under  like  circumstances,  to  secure  such  debt  or  debts,  as  he 
might  himself  choose.  A  pledge  given  to  a  surety  to  secure  him 
for  several  liabilities  without  any  designation  of  the  liability  to 
which  it  shall  be  first  applied,  may  be  applied  to  the  security  and 
payment  of  those  liabilities  in  such  order  as  he  pleases.^ 

359.  A  pledge  may  be  a  continuing  security,  if  so  made  in 
terms.  In  that  case  an  extension  of  time  upon  the  principal 
debt,  or  a  renewal  of  that  debt  in  the  ordinary  course  of  busi- 
ness, will  not  discharge  the  lien  of  the  pledge.  Thus  a  pledge  of 
stock  by  a  married  woman  to  a  bank  "  as  security  for  the  pay- 
ment of  any  demands  the  bank  may  from  time  to  time  have  or 
hold  against "  her  husband,  clearly  applies  to  any  future  indebt- 
edness of  his  to  the  bank.  Such  a  pledge  is  as  wide  in  limit  as 
it  well  could  be.  "  It  specifies  no  kind  of  demand,  no  amount, 
no  length  of  time  of  any  indebtedness,  no  length  of  time  for 
which  the  stock  might  be  liable."  The  pledgor  might  after- 
wards by  notice  to  the  bank  limit  the  liability  to  debts  then  ex- 
isting ;  but  so  long  as  the  pledge  remains  unlimited,  it  will  cover 
any  new  obligation  within  the  terms  of  the  agreement.^ 

360.  A  banker  may  have  a  lien,  for  a  general  balance  due 
him  upon  all  the  securities  of  his  customer  which  may  come 
into  the  banker's  hands  for  any  purpose,  unless  there  be  evidence 
to  show  that  he  received  any  particular  security  under  special 
circumstances  which  would  take  it  out  of  the  common  rule.^  But 
here  as  in  other  cases  of  lien,  says  Judge  Story,  the  right  to  retain 
for  the  general  balance  of  accounts  may  be  controlled  by  any 
special  agreement  which  shows  that  it  was  not  intended  by  the 
parties.  Thus,  for  example,  if  securities  have  been  deposited  with 
a  banker  as  a  pledge  for  a  specific  sum,  and  not  generally,  that 
will  repel  the  inference  that  any  were  intended  to  give  a  lien  for 
the  general  account  oi*balance  between  the  parties.* 

1  Norton  v.  Plumb,  14  Conn.  512,  5  T.  R.  488,  491;  BoUand  v.  Bygrave 
517.  Ry.  &  M.  271,  per  Abbott,  C.  J. 

2  Merchants'  Nat.  Bank  v.  Hall,  83  *  Story  on  Agency,  §  381 ;  Medewe's 
N.  Y.  338  ;  affirming  ,S'.  C.  18  Hun,  Trust,  m  re,  26  Beav.  588;  Vandcrzee 
1 76.  y,  Willis,  3  Bro.  C.  C.  21 ;  Lane  v.  Bai- 

*  Lord  Kenyon  in  Davis  v.  Bowsher,     ley,  47  Barb.  (N.  Y.)  395  ;  VVyckoff  v. 

Anthony,  90  N.  Y.  442. 

287 


§  361.]  THE  DEBT   SECURED. 

Under  an  agreement  that  all  collaterals  given  by  a  debtor  to  a 
bank  should  be  held  and  applied  for  the  payment  of  any  balance 
due  from  him  to  the  bank,  a  surplus  ai'ising  from  the  sale  of  a 
particular  security  belongs  to  the  bank.^ 

Where  a  debtor  by  letter  directed  a  bank  to  which  he  had 
pledged  certain  stock  as  collateral  security  for  a  specific  debt, 
"  to  hold  the  stock  as  a  general  collateral  security  for  all  his 
liabilities  to  the  said  bank,  at  present  existhig  or  which  may 
hereafter  be  incurred  by  him,"  the  bank  was  authorized  to  apply 
the  surplus  of  the  stock,  after  payment  of  the  specific  debt,  'pro 
rata  to  all  such  liabilities.^ 

361.  A  pledge  may  secure  a  future  indebtedness,  as  well 
as  an  indebtedness  existing  at  the  time.^  It  may  be  made  as  a 
continuing  security  for  all  advances  the  pledgee  might  make  to 
the  pledgor;  and  in  such  case  the  pledge  will  be  a  security  for 
all  advances  made  prior  to  the  time  that  some  third  person  ac- 
quires an  interest  in  the  collaterals  pledged.*  A  general  security 
for  all  advances  that  the  creditor  may  make  applies  not  on!}'  to 
unsecured  advances,  but  also  to  those  for  which  a  special  security 
is  also  taken  ;  and  in  that  case  the  creditor  may  rely  upon  either 
security  or  both  ;  and  it  lies  solely  with  him,  and  not  with  the 
debtor  or  any  one  claiming  under  him,  to  determine  in  any  in- 
stance which  security  he  will  enforce.^  Whether  a  pledge  covers 
existing  debts  or  is  limited  to  those  that  may  thereafter  arise,  de- 
pends upon  the  terms  of  the  agreement  of  hypothecation.  Thus 
a  pledge  of  stock  to  a  bank  "  as  security  for  the  payment  of  any 
demands  it  maj^  from  time  to  time  hold  against "  a  debtor  named, 
in  terms  includes  all  demands  the  bank  held  against  him  at  that 
time,  as  well  as  those  that  might  arise  afterwards.*^  "  The 
agreement  does  not  in  terms  name  or  describe  debts  made  before 
the  pledge.  It  does  not  in  terms  name  or  describe  acts  that  were 
done  or  could  have  been  done,  only  before  the  pledge.  It  does 
speak  of  acts  which,  though  begun  before- the  agreement,  could 

1  Walker  v.  Abt,  83  111.  226.  *  Buchanan  v.  International  Bank, 

2  Eichelberger  v.  Murdock,  10  Md.     78  111.  500. 

373.  5  Buchanan  v.  International  Bank, 

8  Sitgreaves    v.    Farmers'    &    Me-  supra. 

chanics'  Bank,  49  Pa.  St.  359  ;  Calkins  «  Merchants'  Nat.  Bank  v.  Hall,  83 

i;.Lockwood,16Conn.  276,  288;  Wolf  N.  Y.  338;    affirming   ii.  C.  18  Hun. 

V.  AVolf,  12  La.  Ann.  529.  176,  178. 

288 


THE  DEBT   SECURED.  [§§  362,  363. 

be  continued  and  thus  be  acts  done  after  its  making.  When  it 
provides  for  demands  that  the  bank  may  from  time  to  time  have 
and  hold  against  the  debtor  it  speaks  of  the  act  of  having  and 
holding  a  demand ;  and  that  is  an  act  that  could  be  done  after 
the  making  of  the  agreement,  though  the  demand  arose  defore, 
and  though  as  an  act  of  having  and  holding  it,  it  was  begun  be- 
fore. If  the  debtor  had,  before  the  date  of  the  agreement,  made 
his  note  to  a  stranger,  and  after  that  date  the  bank  had  become 
the  assignee  of  the  note,  tlie  bank  would  have  had  and  held  it 
after  the  making  of  the  pledge.  The  demand  thereon  would 
have  fallen  within  the  language  of  the  agreement ;  whether 
within  the  intention  of  the  parties  to  the  agreement  is  another 
question.  It  would  have  been  a  demand  had  and  held  by  the 
bank  from  time  to  time  (that  is,  at  any  or  some  time  during  the 
running  of  the  agreement)  against  the  debtor,  and  so  would  have 
been  literally  one  of  the  demands  spoken  of  by  the  instrument. 
It  is  plain  that  the  date  of  origin  of  the  demand  is  not  the  test 
whether  the  pledge  applies  to  it.  The  act  of  having  and  holding 
is."  1 

362.  In  determining  what  debts  are  secured  by  an  absolute 
assignment  of  property  as  collateral  security,  the  whole  transac- 
tion between  the  parties  is  to  be  looked  to.^  A  general  assign- 
ment may  cover  all  claims  of  the  assignee  against  the  assignor, 
although  a  previous  special  assignment  was  limited  to  securing 
liabilities  incurred  for  the  consignor's  accommodation.^ 

If  a  pledge  be  made  by  a  written  instrument  for  a  loan  of  a 
definite  amount  then  made,  the  pledgee  cannot  by  parol  evidence 
show  that  it  was  agreed  between  the  parties  at  the  time  of 
making  the  pledge  that  the  property  should  be  held  as  security, 
not  only  for  that  sum  but  also  for  such  further  advances  as  the 
pledgee  might  afterwards  make  ;  for  a  written  agreement  cannot 
be  enlarged  by  parol.* 

363.  A  pledge  which  secures  an  interest-bearing  debt,  se- 
cures the  interest  as  much  as  the  principal  of  the  debt.     The 

^  Per  Folger,  C.  J.,  in  Merchants'         »  Boardman  v.  Holmes,  supra. 
Nat.  Bank  v.  Hall,  83  N.  Y.  338,  341.         *  Hamilton    v.    Wagner,    2  Marsh. 

2  Boardman  v.  Holmes,  124  Mass.     (Ky.)  331,  332. 
438;  Charles  v.   Coker,   2  S.  C.   122; 
Hilton  V.  Sims,  45  Ga.  565. 

19     -  289 


§  363.]  THE   DEBT   SECURED. 

parties  may  as  between  themselves  increase  the  rate  of  interest, 
just  as  they  may  in  any  other  way  increase  the  debt  secured  by 
the  pledge.  But  as  against  a  subsequent  pledgee  or  purchaser, 
the  prior  pledgee  after  notice  of  subsequent  rights  in  the  property 
cannot  as  against  them  increase  the  rate  of  interest,  any  more 
than  he  could  increase  the  principal  of  the  debt  secured.^ 

^  Jones  on  Mortgages,  §  361. 
290 


CHAPTER   X. 

THE  pledgor's  RIGHTS  AKD  LIABILITIES  BEFORE  DEFAULT. 

I.  Right  to  sell  or  assign  his  interest,  364-  I   II.  Liability  of  his  interest  to  attachment 
371.  I         and  execution,  372-392. 

I.  Might  to  Sell  or  Assign  his  Interest. 

364.  Property  under  pledge  may  be  transferred  by  the 
general  owner  subject  only  to  the  lien,  by  a  proper  contract 
and  upon  a  good  consideration.^  "  In  such  case,  as  the  actual 
custody  and  possession  of  the  goods  for  the  time  being  is  in  the 
hands  of  the  party  having  the  lien,  it  follows  that  a  constructive 
or  symbolical  delivery  is  sufficient  to  pass  the  property.  An 
order  by  the  vendor  upon  the  keeper,  or  if  the  contract  of  sale  or 
conveyance  be  in  writing,  proper  and  satisfactory  notice  of  the 
conveyance  by  the  vendee  to  the  holder,  constitutes  such  con- 
structive delivery.  Where  goods  are  lying  in  a  warehouse,  al- 
though subject  to  a  lien  for  keeping,  notice  to  the  warehouse- 
keeper,  where  all  the  other  requisites  of  a  sale  are  proved,  is 
equivalent  to  a  delivery.  After  such  notice  the  keeper  ceases 
to  be  the  agent  of  the  vendor,  and  becomes  the  agent  of  the 
vendee,  and  thus  the  goods  are  placed  under  the  effective  control 
of  the  vendee,  as  they  would  be  by  an  active  delivery."  ^ 

If  a  creditor  hold  a  collateral  note  under  a  blank  indorsement 
of  the  payor,  the  latter  may  before  maturity  of  the  note  sell  and 
assign  it  with  the  creditor's  knowledge  without  further  indorse- 
ment, or  without  filling  up  the  blank ;  and  such  assignee  will  ac- 
quire it  free  from  all  equities  other  than  the  lien  of  the  pledgee, 
although  it  be  not  delivered  by  the  latter  to  such  assignee  until 
after  maturity.^ 

1  Franklini;.Neate,  13M.&W.481;  v.  Lyon,  9  Cow.  (N.  Y.)  52;  Ratcliff 

Whitaker  v.  Sumner,  20  Pick.  (Mass.)  v.  Vance,  2  Mills  (S.  C.)  Const.  239, 

399;  Tuxworth  v.  Moore,  9  lb.  347;  2  pgr  Shaw,  C.  J.,  in  Wliitaker  v. 

Fettyplace    v.    Dutch,    13    lb.    388  ;  Sumner,  supra. 

Cooper  V.  Ray,  47   111.    53;    Sanders  ^  Grimm  v.  Warner,  45  Iowa,  106. 
V.  Davis,  13  B.  Mon.  (Ky.)  432;  Bush 

291 


§§  365-368.]  pledgor's  rights  and  liabilities  before  default. 

365.  One  taking  an  assignment  from  the  pledgor  of  his 
contract  of  pledge,  acquires  only  the  latter's  rights,  inasmuch 
as  he  is  chargeable  with  notice  of  all  that  he  might  learn  upon 
inquiry  in  respect  to  the  contract,  and  the  rights  of  the  parties 
under  it.^ 

366.  A  right  reserved  by  the  pledgor  to  sell  the  thing 
pledged,  to  be  exercised  at  any  time  upon  payment  of  the  debt 
secured,  gives  him  no  right  to  sell  it  until  he  has  first  paid  the 
debt.  If  the  pledgor  obtain  possession  of  the  propert}'  and  sell  it 
without  the  pledgee's  consent,  he  is  liable  for  a  conversion  of  it.^ 

367.  Notice  to  a  purchaser  of  goods  of  a  pledgee's  lien 
thereon  for  advances,  charges  the  purchaser  with  its  pay- 
ment, if  he  has  such  notice  before  or  at  the  time  of  accepting  the 
goods. ^  Thus  if  the  purchaser  receives  the  goods  upon  the  order 
of  the  general  owner  which  directs  the  delivery  of  the  goods, 
upon  the  payment  of  a  certain  sum  to  the  pledgee,  who  is  author- 
ized to  give  the  purchaser  credit  therefor,  and  the  pledgee  de- 
livers the  goods  accompanied  by  a  bill  or  invoice  charging  the 
amount  due  him,  in  an  action  therefor,  the  purchaser  cannot  off- 
set a  claim  he  has  against  the  general  owner.* 

368.  If  the  pledgor's  assignee  give  notice  of  his  owner- 
ship to  the  pledgee,  the  latter  is  liable  if  he  afterwards  delivers 
the  property  to  the  pledgor  or  to  any  one  else,  without  the  as- 
signee's consent.^ 

^  Taggart  v.  Packard,  39  Vt.  628.  induce   action    in    the   defendants   in 

2  Prescott  V.  Prescott,  41  Vt.  131.  reliance  upon  a  belief  that  the  plain- 

8  Nottebohm  v.  Maas,  3  Robt.  (N.  tiffs'  meant  to  relinquish  it.     The  act 

Y.)  249.  of  delivery  of  the  oil  to  the  defend- 

*  Carrington  u.  Ward,  71  N.  Y.  360,  ants  was  accompanied  by  an  invoice, 

3G3;  affirming  S.  C.  10  J.  &  S.  572.  which,  in  its  contents,  was  a  written 

Folger,  J.,  in  the  Court  of   Appeals,  claim   for   fifteen  dollars   per   barrel. 

said :    "  Thus  we  have  beyond  dispute  The  defendants  took  the  oil  with  that 

the  existence  of  the  lien,  and  the  de-  claim.     They  were  bound  to  make  in- 

fendants'  knowledge  or  binding  notice  quiry,  or  to  refuse  and  return  the  oil, 

thereof,  or  notice  enough  to  obligate  or  to   take  it  with   the  obligation  on 

inquiry.    It  is  beyond  dispute  that  the  their  part  to  make   payment  of    that 

plaintiffs  never  gave  up  their  lien,  or  sum  at  a  proper  time." 

did  any  thing  to  lead  the  defendants  ^  Duell  v.  Cudlipp,  1  Hilt.  (N.  Y.) 

to  suppose  that  they  meant  to,  or  to  166. 

292 


RIGHT   TO   SELL   OR   ASSIGN   HIS   INTEREST.      [§§  369-371. 

369.  For  a  conversion  of  the  pledge  which  has  taken  place 
before  the  pledgor's  assignment  of  it,  the  assignee  cannot  re- 
cover against  the  pledgee  or  other  person  in  his  own  name.  A 
demand  for  the  chattel  by  such  assignee  upon  the  pledgee,  and  his 
refusal  to  give  it  up,  because  he  had  already  parted  with  its  pos- 
session, does  not  constitute  a  conversion.  Neither  can  such  as- 
signee claim  by  virtue  of  a  previous  demand  by  the  pledgor.^ 
But  if  the  pledgor  has  assigned  not  merely  the  property,  but  also 
his  cause  of  action  for  a  converson  already  made  by  the  pledgee, 
then  the  assignee  could  maintain  an  action  either  in  his  own 
name  or  that  if  his  assignor  according  to  the  Code  of  Procedure 
under  which  the  action  is  brought,  for  such  prior  conversion.^ 

370.  A  pledgor's  assignee  is  entitled  to  redeem  the  pledge, 
or  to  recover  judgment  for  a  subsequent  conversion  of  it  by  the 
pledgee  or  other  person.^  The  assignee  is  at  all  times  entitled  to 
redeem  the  pledge,  by  paying  such  a  sum  as  would  have  cancelled 
and  discharged  the  pledgee's  claim  at  the  time  of  the  assignment. 
If  the  pledgee  sell  the  pledge,  the  prior  assignee  is  entitled  to  the 
surplus  money,  and  in  a  suit  to  recover  it  the  pledgee  can  set-off 
no  claim  which  he  has  against  the  pledgor  other  than  the  specific 
debt,  to  secure  which  the  pledge  was  made.* 

371.  A  pledgee  of  corporate  bonds  or  other  like  collateral 
securities  does  not  affirm  their  genuineness,  by  delivering 
them  to  one  purchasing  from  the  owner,  although  he  receives 
the  purchase-money  directly  from  the  purchaser,  and  after  deduct- 
ing the  amount  of  the  debt  secured  pays  over  the  residue  to  the 
owner.  In  the  absence  of  fraud  the  purchaser  cannot  recover 
back  the  purchase  price  in  case  the  securities  prove  to  have  been 
forged.  A  pledgee  upon  receiving  payment  is  bound  to  deliver 
the  securities  to  whomsoever  the  pledgor  may  direct,  and  the 
fact  that  the  whole  proceeds  are  paid  to  him  and  that  he  pays 
over  only  the  surplus  to  the  pledgor,  does  not  change  the  charac- 
ter of  the  transaction  from  a  payment  to  the  pledgee  to  a  sale  by 
him.     Nor  does  the  circumstance  that  the  original  transaction 

1  Duell  V.  Cudlipp,  1  Hilt.  (N.  Y.)  Franklin  v.  Neate,  13  M.  &  W.  481; 
166.  Duprd  I'.  Fall,  10  Cal.  430. 

2  Duell  V.  Cudlipp,  supra;  McKee  ^  Van  Blarcora  v.  Broadway  Bank, 
V.  Judd,  12  N.  Y.  622.  37  N.  Y.  540. 


»  Kemp  V.  Westbrook,  1  Ves.  278 ; 


293 


§  371.]     pledgor's  rights  and  liabilities  before  default. 

was  in  the  form  of  a  purchase  of  bonds  by  the  pledgee  at  the 
request  of  the  pledgor,  with  an  agreement  that  the  former  would 
within  a  definite  time  sell  the  bonds  to  the  latter  for  the  amount 
of  the  loan  applied  for  and  made,  change  the  character  of  the 
transaction,  though  this  form  was  given  to  it  to  avoid  the  usury 
laws.  The  pledgee  may,  notwithstanding,  show  the  real  transac- 
tion, and  avoid  all  responsibility  for  the  genuineness  of  the  bonds.^ 
Nor  is  there  any  such  responsibility  on  the  part  of  a  creditor 
who  upon  the  order  of  his  debtor  transfers  the  debtor's  note 
and  pledge  of  a  spurious  certificate  of  stock  to  another  upon  re- 
ceiving the  amount  of  the  note,  both  parties  being  ignorant  of 
the  spurious ness  of  the  certificate.  The  person  so  taking  the 
certificate  cannot  recover  back  the  purchase-money  from  the 
pledgee,  as  upon  a  sale  of  the  note  and  stock,  for  the  transaction 
is  not  a  sale.^  "  The  case  then  is  strictly  this  :  the  Schuylers 
owe  the  defendant  money,  and  they  procure  the  plaintiffs  to  pay 
that  money.  As  security  for  such  payment,  or  upon  some  other 
consideration  not  disclosed,  they  at  the  same  time  procure  the 
defendant  to  transfer  to  the  plaintiffs  a  certificate  of  stock,  of 
which  the  defendant  held  the  formal  title,  but  which  belonged 
wholly  to  the  Schuylers,  and  was  subject  to  their  control.  Both 
the  plaintiffs  and  the  defendant  thought  the  certificate  valuable, 
but  it  is  in  truth  worthless,  and  the  plaintiffs  have  lost  their  money. 
With  whom  did  the  plaintiffs  deal  for  the  stock  ?  Not  with  the 
defendant,  who  did  not  have  and  did  not  profess  to  have  any  bene- 
ficial title  to  it,  but  with  the  Schuylers,  who,  when  their  debt  to 
the  defendant  was  paid,  were  the  owners.  The  defendant  assumed 
nothing,  warranted  nothing.  What  he  had  received  on  the  loan  to 
the  Schuylers  he  was  bound  and  was  willing,  the  loan  being  paid, 
to  give  back  to  them,  if  they  chose  to  take  it,  or  if  not,  to  the 
parties  whom  they  should  name  to  be  the  recipients  of  the  title. 
They  named  the  plaintiffs,  and  the  defendant  made  the  transfer 
to  them.  I  can  see  no  reason  why  such  an  act  should  involve  any 
responsibility  on  the  part  of  the  defendant."  ^ 

1  Baker  v.  Arnot,   67  N.  Y.  448;         3  Ketchum  v.  Bank  of   Commerce, 
affirming  5  T.  &  C.  215.  supra,  per  Denio,  J. 

2  Ketchum  v.  Bank  of  Commerce, 
19  N.  Y.  499. 

294 


LIABILITY   OF  HIS  INTEREST   TO   ATTACHMENT,  ETC.       [§  372. 

II.  Liability  of  his  Interest  to  Attachment  and  Execution. 

372.  At  common  law  goods  held  in  pledge  could  not  be 
attached  or  taken  in  execution  in  an  action  against  the 
pledgor.^  The  pledgee's  possession  could  not  be  disturbed, 
because  the  pledgor's  creditor,  or  the  officer  acting  for  him  in 
making  the  attachment  or  levy  could  acquire  no  greater  interest 
in  the  property,  and  no  greater  control  over  it  than  that  possessed 
by  the  pledgor,  against  whom  ran  the  process  of  the  court.  "  A 
mere  equitable  interest  cannot  be  taken  and  sold  on  execution  ; 
for  where  there  is  no  legal  right  there  is  no  legal  remedy."  ^  This 
statement  is  strictly  applicable  to  mortgages  of  chattels.^  But  in 
the  case  of  a  pledge,  though  the  pledgor  has  the  general  owner- 
ship, and,  in  general,  the  legal  title,  yet  the  possession  being  in 
the  pledgee,  the  pledgor  has  strictly  only  a  right  to  redeem  ;  and 
neither  he  nor  any  one  in  his  right  can  regain  possession,  or  a 
right  to  it,  except  upon  payment,  or  tender  of  payment,  of  the 
amount  for  which  the  property  is  held  in  pledge.*  A  creditor  of 
the  pledgor  could  not  compel  the  pledgee  to  accept  payment  of 
the  debt  before  its  maturity,  even  if  he  could  compel  such  accept- 
ance in  any  case. 

It  is  only  by  statute  that  this  can  be  done.  Though  it  has 
been  intimated  in  a  few  cases  that  possibly  an  attachment  of 
pledged  property  might  be  sustained,  upon  payment  or  tender  to 
the  pledgee  of  the  amount  due  him ;  yet  it  is  doubtful  whether 
this  can  be  done  without  express  statutory  authority  therefor. 
A  resort  to  this  expedient  seems  to  have  been  generally  regarded 
as  too  hazardous  to  attempt,  in  the  absence  of  any  direct  author- 
ity to  sustain  it.^ 

If,  however,  the  pledgee  voluntarily  surrenders  possession  of 
the  pledge  upon  receiving  payment  of  the  debt  secured  by  it,  it 

1  Scott    V.    Scholey,    8   East,  467;  Srodes  v.  Caven,  3  Watts  (Pa.),  258; 

Metcalf  y.  Scholey,  5  Bos.  &  Pull.  461;  Briggs  v.  Walker,  21  N.  H.  72,  77; 

Badlara  v.  Tucker,   1    Pick.   (Mass.)  Hudson  v.  Hunt,  5  N.  H.  538  ;  Dowler 

389;    Pomeroy  v.    Smith,   17  lb.  85;  v.  Cushwa,  27  Md.  354,  366. 

Hunt   V.   Holton,    13   lb.    216,    221;  "  Badlam     v.    Tucker,    supra,  per 

Holbrook  v.  Baker,  5  Me.  309;  Soule  Wilde,  J. 

V.  White,  14  Me.  436 ;  Thompson  v.  ^  Jones     on     Chattel     Mortgages, 

Stevens,  10  Me.  27  ;  Wilkes  v.  Ferris,  §  555. 

5  Johns.  (N.  Y.)  336;  Marsh  v.  Law-  *  Picquet  v.   Swan,  4  Mason,  443, 

rence,  4  Cow.   (N.  Y.)  461;    Sticf  v.  464. 

Hart,  1  N.  Y.  20,  28,  per  Jewett,  C.  J.;  ^  Sargent  t;.  Carr,  12  Me.  396. 

295 


§§  373-375.]  pledgor's  rights  and  liabilities  before  default. 

seems  that  the  property  thereupon  is  subject  to  levy  and  sale 
upon  execution  against  the  pledgor.^ 

373.  Neither  is  property  held  in  pledge  generally  subject 
to  attachment  by  trustee  or  garnishee  process,  except  by 
virtue  of  statutory  provisions.^  This  is  upon  the  principle  that 
a  garnishee  is  not  liable  in  respect  to  such  property  of  the  de- 
fendant in  his  hands  as  is  not  capable  of  being  seized  and  sold 
under  execution.  A  garnishee  or  trustee,  in  the  absence  of  any 
agreement  that  he  shall  sell  the  property  held  by  him  in  pledge, 
cannot  be  compelled  to  do  so ;  but  if  he  does  sell  it  under  a 
power,  and  there  is  a  surplus  in  his  hands  after  paying  the  debt 
secured,  such  surplus  may  be  reached  by  this  process.^ 

374.  Statutes  have  been  enacted  in  several  of  the  states 
to  enable  creditors  of  the  general  owner  to  reach  and  apply  his 
interest  in  pledged  property  to  their  claims  by  process  of  attach- 
ment and  execution.  Full  protection,  however,  is  always  given 
to  the  pledgee. 

375.  Alabama.  —  There  is  no  special  statute  respecting  the 
mode  of  attaching  or  levying  execution  upon  the  interest  of  a 
pledgor  in  the  pledge ;  but  it  seems  that  such  interest  may  be 
attached  by  process  of  garnishment  under  the  general  statute.* 
It  seems,  also,  that  an  execution  might  be  levied  upon  such  in- 
terest, for  it  is  held  that  the  interest  of  a  mortgagor  of  chattels 
or  of  one  who  has  conveyed  personal  property  by  a  bill  of  sale 
absolute  on  its  face,  as  a  mere  security  for  a  debL  may  be  sold 
under  execution,  and  that  the  sheriff  has  the  right  to  take  the 
property  into  his  possession  for  the  purpose  of  making  the  levy.^ 

^  Mower  v.  Stickney,  5  Minn.  397,  and  sold  subject  to  the  claim  of  the 

404.    In  this  case  Emniett,  C.  J.,  said:  pledgee." 

"  If  property  be  pledged  by  the  owner,  *  Drake    on    Attachment,    §    539; 

his  creditors  may  not  be  able  to  deprive  Whitney  v.  Dean,  5  N.  H.  249  ;  How- 

the  pledgee  of  his  possession  without  ard  v.   Card,  6   Me.  353 ;    Kergin  v. 

first  satisfying  his  claim;  yet  that  is  a  Dawson,   1  Gilm.  (111.)  86;    Patterson 

matter  which    concerns   the  pledgee  v.  Harland,  12  Ark.  158. 

alone,  and  if  he  deliver  the  property  ^  Badlam  v.  Tucker,  1  Pick.  (Mass.) 

to  the  officer,  we  cannot  see  that  the  389;  Howard  v.  Card,  supra. 

pledgor   has  any   right  to  complain;  *  Petty  v.  Overall,  42  Ala.  145. 

nor  why  it  may  not  be   levied  upon  ^  McConeghy  v.  McCaw,  31    Ala. 


447. 


296 


LIABILITY   OF   HIS   INTEREST   TO   ATTACHMENT,  ETC.     [§§  376-379. 

376.  California.  —  The  interest  of  a  pledgor  in  a  pledge  may 
be  reached  by  garnishment.  It  is  provided  that  "  all  goods, 
chattels,  moneys,  and  other  property,  both  real  and  personal,  or 
any  interest  therein  of  the  judgment  debtor,  not  exempt  by 
law,  and  all  property  and  rights  of  property,  seized  and  held 
under  attachment  in  the  action,  are  liable  to  execution."  ^  It  is 
further  provided  that  debts,  credits,  and  other  personal  property 
not  capable  of  manual  deliver}^,  may  be  attached  by  garnishee 
process.  The  garnishee  may  be  examined  respecting  the  prop- 
erty, and  "the  court  or  judge  may,  after  such  examination,  oi'der 
personal  property,  capable  of  manual  delivery,  to  be  delivered  to 
the  sheriff  on  such  terms  as  may  be  just,  having  reference  to  any 
liens  or  claims  against  the  same."  ^  Whilst,  therefore,  the  inter- 
est of  the  pledgor  may  be  reached  by  a  general  creditor,  this  can 
only  be  done  by  serving  a  garnishment  upon  the  pledgee,  and 
not  by  a  seizure  of  the  pledge.  The  interests  of  the  pledgee  are 
protected  by  the  court  under  the  discretionary  power  conferred 
by  the  statute.^ 

377.  Colorado.  *  —  When  it  shall  appear  that  the  goods,  chat- 
tels, choses  in  action,  or  effects  in  the  hands  of  a  garnishee,  are 
mortgaged  or  pledged,  or  in  any  way  liable  for  the  payment  of  a 
debt  to  him,  the  plaintiff  may  be  allowed,  under  an  order  of  the 
court  or  justice  of  the  peace  for  that  purpose,  to  pay  or  tender 
the  amount  due  to  the  garnishee  ;  and  he  shall  thereupon  deliver 
the  goods,  chattels,  choses  in  action,  and  effects  to  the  officer  who 
holds  the  execution. 

378.  Georgia.  ^  —  Property  in  pawn  may  be  seized  and  sold 
under  execution  against  the  pawnor,  but  upon  notice  by  the 
pawnee  to  the  levying  officer,  the  court,  in  distributing  the  pro- 
ceeds, will  recognize  his  lien  according  to  its  dignity,  and  give 
such  direction  to  the  funds  as  shall  protect  his  legal  rights. 

379.  Indiana.  ^  —  Goods   and  chattels    pledged,  assigned   or 

1  Codes  &  Stats.    1876,    §  10,688  ;  *  Laws,  1879,  p.  82,  §§  17,  18. 
§  688  of  Civil  Code.  ^  Code,  187.3,  §  2144. 

2  Codes  &  Stats.  1876,  §  10,545  ;  «  2  K.  S.  1876,  p.  207,  §  436.  See 
§  545  of  Civil  Code.  Jones  on  Chattel  Mortgages,  §  578. 

8  Treadwell  v.  Davis,  34  Cal.  601, 
607.  297 


§§  380,  381.]   pledgor's  eights  and  liabilities  before  default. 

mortgaged  as  security  for  any  debt  or  contract  may  be  levied 
upon  and  sold  on  execution  against  the  person  making  the  pledge, 
assignment,  or  mortgage  subject  thereto,  and  the  purchaser  shall 
be  entitled  to  the  possession,  upon  complying  with  the  conditions 
of  the  pledge,  assignment  or  mortgage. 

380.  Louisiana.  —  Property  held  in  pledge  is  subject  to  at- 
tachment and  to  levy  of  execution  in  a  suit  against  the  pledgor, 
subject,  however,  to  the  pledgee's  claim.^  In  a  recent  case  the 
Supreme  Court  of  the  State  say  :  ^  "It  is  now  well  settled  in  our 
jurisprudence,  that  the  property  of  any  nature,  held  in  pledge  by 
a  creditor,  may  be  seized  from  his  possession  by  another  creditor 
of  the  common  debtor,  and  sold  subject  to  the  pledgee's  claim. 
The  only  right  which  the  law  secures  to  the  pledgee  is  to  satisfy 
his  debt  '  by  privilege  and  in  preference  to  other  creditors  of  his 
debtor,  out  of  the  product  of  the  movable,  corporeal,  or  incor- 
poreal, which  has  been  thus  burdened.'  ^  Nothing  in  the  nature 
of  the  contract  can  authorize  the  pledgee  to  hold  indefinitely  the 
property  pledged,  which  is  usually  far  in  excess  of  the  amount 
thereby  secured,  and  to  thus  deprive  other  creditors  of  their  re- 
course on  the  debtor's  property." 

381,  Maine.  ^  —  Personal  property  not  exempt  from  attach- 
ment, mortgaged,  pledged,  or  subject  to  any  lien  created  by  law, 
and  of  which  the  debtor  has  the  right  of  redemption,  may  be  at- 
tached, held  and  sold  as  if  it  were  unincumbered,  if  the  attach- 
ing creditor  first  tenders  or  pays  the  mortgagee,  pledgee,  or 
holder,  the  full  amount  unpaid  on  the  demand  so  secured  thereon. 
When  personal  property,  attached  on  a  writ  or  seized  on  execu- 
tion, is  claimed  by  virtue  of  such  mortgage,  pledge,  or  lien,  the 
claimant  shall  not  bring  an  action  against  the  attaching  officer 
therefor  until  he  has  given  him  at  least  forty-eight  hours'  written 
notice  of  his  claim,  and  the  true  amount  thereof ;  and  the  officer 
or  creditor  may,  within  that  time,  discharge  the  claim  by  paying 
or  tendering  the  amount  due  thereon,  or  restore  the  property. 
The  officer  may  give  the  claimant  written  notice  of  his  attach- 

1  Auge  w.  Variol,  31  La.  Ann.  865.  *  R.  S.  1871,  ch.  81,  §§  41,  44.     See 

2  Horner  v.  Dennis,  34  La.  Ann.  Jones  on  Chattel  Mortgages,  §  581,  for 
389.  notes  to  this  statute  of  cases  arising 

*  Civ.  Code,  Art.  3157.  under  mortgages. 

298 


LIABILITY    OF   HIS   INTEREST   TO   ATTACHMENT,  ETC.       [§  382. 

ment ;  and  if  he  does  not,  within  ten  days  thereafter,  deliver  to 
the  officer  a  true  account  of  the  amount  due  on  his  claim,  he 
thereby  waives  the  right  to  hold  the  property  thereon  ;  and  if 
his  account  is  false,  he  forfeits  to  the  creditor  double  the  amount 
of  the  excess  to  be  recovered  in  an  action  on  the  case.  If  the 
creditor  redeems  such  property,  and  it  is  subsequently  sold  by 
the  officer,  he  shall,  from  the  proceeds,  first  pay  to  the  creditor 
the  amount  with  interest  paid  by  him  to  redeem,  and  apply  the 
balance,  if  any,  to  the  debt  on  which  it  was  attached  or  seized  on 
execution. 

When  a  trustee^  states  in  his  disclosure  that  he  had,  at  the 
time  the  process  was  served  on  him,  in  his  possession,  property 
not  exempted  by  law  from  attachment,  mortgaged,  pledged,  or 
delivered  to  him  by  the  principal  defendant  to  secure  the  pay- 
ment of  a  sura  of  money  due  to  him,  and  that  the  principal  de- 
fendant has  an  existing  right  to  redeem  it  by  payment  thereof, 
the  court  or  justice  before  which  the  action  is  pending  shall  order 
that  on  payment  or  tender  of  such  money  by  the  plaintiff  to  said 
trustee  within  such  time  as  the  court  orders,  and  while  the  right 
of  redemption  exists,  he  shall  deliver  over  the  property  to  the 
officer  serving  the  process,  to  be  held  and  disposed  of  as  if  it  had 
been  attached  on  mesne  process ;  and  in  default  thereof  that  he 
shall  be  charged  as  the  trustee  of  the  principal  debtor.  This 
order  shall  be  entered  on  the  records  of  the  court  of  justice.  On 
the  return  of  the  scire  facias  against  such  trustee,  if  it  appears 
that  the  plaintiff  has  complied  with  the  order  of  the  court  or 
justice,  and  the  trustee  has  refused  or  neglected  to  comply  there- 
with, the  court  or  justice  shall  enter  up  judgment  against  him  for 
the  amount  due  and  returned  unsatisfied  on  the  execution,  if 
there  appears  to  be  in  his  hands  such  an  amount  of  the  property 
mortgaged  over  and  above  the  sum  due  him,  but  if  not,  then  for 
the  amount  of  said  property  exceeding  that  sum,  if  any  ;  and 
this  amount  of  excess  shall,  on  the  trial  of  scire  facias^  be  deter- 
mined by  the  court  or  jury. 

382.  Massachusetts.^  —  Personal  property  of  a  debtor  that 

1  R.  S.  1871,  c.  86,  §§  50,  51.  The  provisions  authorizing  the  at- 

2  Pub.  Stats.,  1882,  Ch.  161,  §§  74-78.     tachment  of  personal  property  subject 
See   Jones  on    Ciiattel    Mortgafres,     to  a  mortjjaije  or  ple(l<!;e  do  not  author- 

§  583,  for  notes  of  cases  arising  under  ize  the  seizing  of  such  property  on 
mortgages.  execution  in  the  first  instance.     The 

299 


§  382.]    pledgor's  rights  and  liabilities  before  default. 

is  subject  to  a  mortgage,  pledge,  or  lien,  and  of  which  the  debtor 
has  the  right  of  redemption  may  be  attached  and  held  in  like 
manner  as  if  it  were  unincumbered,  if  the  attaching  creditor  pays 
or  tenders  to  the  mortgagee,  pawnee  or  holder  of  the  property, 
the  amount  for  which  it  is  so  liable  within  ten  days  after  the 
same  is  demanded  as  hereinafter  provided. 

Every  such  mortgagee,  pawnee  or  holder  shall  when  demanding 
payment  of  the  money  due  to  him,  state  in  writing  a  just  and 
true  account  of  the  debt  or  demand  for  which  the  property  is 
liable  to  him  and  deliver  it  to  the  attaching  creditor  or  officer. 
If  the  same  is  not  paid  or  tendered  to  him  within  ten  days  there- 
after the  attachment  shall  be  dissolved,  and  the  property  shall 
be  restored  to  him  ;  and  the  attaching  creditor  shall  moreover  be 
liable  to  him  for  any  damages  he  has  sustained  by  the  attach- 
ment. If  he  demands  and  receives  more  than  the  amount  due  to 
him,  he  shall  be  liable  for  the  excess,  with  interest  thereon  at 
tlie  rate  of  twelve  per  cent,  a  year,  to  be  recovered  by  the  at- 
taching creditor  in  an  action  of  contract  for  money  had  and 
received. 

When  property  attached  and  redeemed  as  aforesaid  is  sold  on 
mesne  process  or  on  execution,  the  proceeds  thereof,  after  de- 
ducting the  charges  of  the  sale,  shall  be  first  applied  to  repay  to 
the  attaching  creditor  the  amount  so  paid  by  him  with  interest. 

If  the  plaintiff,  after  having  redeemed  the  goods,  does  not  re- 
cover judgment  in  the  suit,  he  shall  nevertheless  be  entitled  to 
hold  the  goods  until  the  defendant  repays  to  him  the  sura  which 
he  paid  for  the  redemption,  or  as  much  thereof  as  the  defendant 
would  have  been  obliged  to  pay  to  the  mortgagee,  pawnee  or 
holder  of  the  goods,  if  they  had  not  been  attached,  with  interest 
from  the  time  when  the  same  is  demanded  of  the  defendant. 

Under  this  statute  one  to  whom  the  pledgee  of  goods  has  with 

remedy  of  a  judgment  creditor  is  by  The  rule  is  founded  upon  the  consid- 

attachment  or  trustee  process.     The  eration,  that  for  all  beyond  the  debt, 

property  cannot  be  taken  on  execution  for  which  the  goods  are  pledged,  the 

unless  it  has  been  previously  attached  pledgee  is  responsible  to  the  pledgor, 

on  mesne  process.     Lyon  v.  Coburn,  1  Pomeroy  v.  Smith,  17  Pick.  85. 

Cush.  (Mass.)  278.  An  attachment  of  property  conveyed 

A  pledgee  is  entitled  to  recover  of  by  a  bill  of  sale  absolute  in  form,  but 

an  officer  who  has  unlawfully  attached  really  given  as  collateral  security,  can 

the  goods    pledged,    not    merely  the  be  dissolved  only  by  a  demand  in  ac- 

amount  of   the   debt   secured  by   the  cordance  with   the   statute.     Putnam 

pledge,  but  the  full  value  of  the  goods,  v.  Rowe,  110  Mass.  28. 

300 


LIABILITY   OF   HIS   INTEREST   TO   ATTACHMENT,  ETC.  .    [§  383. 

the  pledgor's  consent  consigned  them  for  sale,  can  make  demand 
in  his  own  name  for  the  payment  of  the  amount  for  which  they 
were  pledged,  upon  an  officer  who  has  attached  them  on  a  writ 
against  the  pledgor ;  and,  on  refusal  of  the  officer  to  pay  the 
amount  or  release  the  attachment,  can  in  his  own  name  maintain 
an  action  against  him  for  the  conversion.^  Such  consignee  has 
the  right  of  possession ;  and  primd  faeie  that  is  sufficient  to  en- 
able him  to  maintain  an  action  for  the  possession,  or  for  any  injury 
to  the  goods.  As  against  trespassers,  and  those  showing  no  title 
or  right  such  possession  is  sufficient  for  all  purposes. ^ 

A  contract  by  which  a  debtor  undertakes  to  give  collateral 
security  to  certain  of  his  creditors,  by  agreeing  to  hold  personal 
property  purchased  with  money  borrowed  from  them,  in  trust  for 
their  security  does  not  protect  the  property  from  being  seized 
upon  attachment  or  execution  by  the  general  creditors  of  such 
debtor.  Such  a  trust  is  an  evasion  of  the  general  policy  of  the 
laws  respecting  pledges  and  mortgages.^ 

383.  Michigan.^ — When  goods  or  chattels  shall  be  pledged 
^y  way  of  mortgage  or  otherwise,  for  the  payment  of  money  or 
.the  performance  of  any  contract  or  agreement,  such  goods  or 
chattels  may  be  levied  upon  and  sold  on  execution  against  the 
person  making  such  pledge,  subject  to  the  lien  of  the  mortgage 
or  pledge  existing  thereon ;  and  the  purchaser  at  such  sale  shall 
be  entitled  to  pay  to  the  person  holding  such  mortgage  or  pledge 
the  amount  actually  due  thereon,  or  otherwise  perform  the  terms 
and  conditions  of  the  pledge,  at  any  time  before  the  actual  fore- 
closure of  such  mortgage  or  pledge ;  and  on  such  payments  or 
performances,  or  a  full  tender  thereof,  shall  thereupon  acquire 
all  the  right,  interest  and  property  which  the  defendant  in  exe- 
cution would  have  had  in  such  goods  or  chattels  if.  such  mort- 
gage or  pledge  had  not  been  made. 

There  are  also  provisions  for  the  attachment  of  property  subject 
to  a  mortgage  or  pledge  by  the  process  of  garnishment.  When 
it  appears  that  a  garnishee  holds  property  of  the  principal  de- 
fendant subject  to  any  pledge,  lien  or  mortgage,  the  court  may 
order  him  to  deliver  such  property  to  a  commissioner  or  receiver, 

1  Clark  r.  Dearborn,  103  Mass.  335.         »  Huntington     v.     Clemence,     103 

2  Per  Wells,  J.,  in  Clark   v.  Dear-     Mass.  482. 

born,  supra.  *  2  Coinp.  Laws  1871,  §  G097. 

301 


§§  384,  385.]  pledgor's  rights  and  liabilities  before  default. 

to  be  by  him  disposed  of  under  the  direction  of  the  court.  The 
surplus  proceeds,  after  paying  the  amount  of  such  incumbrance, 
are  applied  upon  any  execution  that  may  be  obtained  in  favor  of 
the  plaintiff  against  the  garnishee.  The  plaintiff  may  also  by 
order  of  court  be  allowed  to  pay  or  tender  the  amount  due  to  the 
garnishee.^ 

384.  Minnesota.2  —  When  goods  or  chattels  are  pledged  for 
the  payment  of  money,  or  the  performance  of  any  contract  or 
agreement,  the  right  and  interest  in  such  goods  of  the  person 
making  sucli  pledge  may  be  sold  on  execution  against  him,  and 
the  purchaser  shall  acquire  all  the  right  and  interest  of  the  de- 
fendant, and  be  entitled  to  the  possession  of  such  goods  and 
chattels,  on  complying  with  the  terms  and  conditions  of  the 
pledge. 

Whenever  it  appears  that  any  property  or  effects  in  the  hands 
of  the  garnishee,  belonging  to  the  defendant,  are  properly  mort- 
gaged, pledged,  or  in  any  way  liable  for  the  payment  of  any  debt 
due  to  said  garnishee,  the  plaintiff  may  be  allowed,  under  a 
special  order  of  court,  to  pay  or  tender  the  amount  due  ;  and  the 
garnishee  shall  thereupon  deliver  the  property  or  effects  as  here- 
inbefore provided,  to  the  officer  holding  the  execution,  who  shall 
sell  the  same  as  in  other  cases,  and  out  of  the  proceeds  shall  re- 
pay the  plaintiff  the  amount  paid  by  him  to  the  garnishee  for 
the  redemption  of  such  property  or  effects,  with  legal  interest 
thereon,  and  apply  the  balance  upon  the  execution. 

385.  New  Hampshire.^  —  Any  personal  property  not  exempt 
from  attachment,  subject  to  any  mortgage,  pledge,  or  lien,  may 
be  attached  as  the  property  of  the  mortgagor,  pledgor,  or  general 
owner,  the  attaching  creditor  or  officer  paying  or  tendering  to  the 
mortgagee,  pledgee,  or  holder,  the  amount  for  which  said  prop- 
erty is  holden.  Such  creditor  or  officer  may  demand  of  the  mort- 
gagee, pledgee  or  holder  on  account,  on  oath,  of  the  amount  due 
upon  the  debt  or  demand  secured  by  such  mortgage,  pledge,  or 
lien,  and  the  officer  may  retain  such  property  in  his  custody  until 
the  same  is  given  without  tender  or  payment,  and  if  such  account 
is  not  given  within  fifteen  days  after  such  demand,  or  if  a  false 

1  2  Comp.  Laws,  1871,  c.  202,  §  3  G.  L,  1878,  c.  224,  §§  17,  18;  c. 
6472.  236,  §§  3-5. 

2  G.  S.  1878,  c.  66  §309. 

302 


LIABILITY    OF   HIS   INTEREST   TO   ATTACHMENT,  ETC.      [§§  386,  387. 

account  is  given,  such  property  may  be  holden  discharged  from 
such  mortgage,  pledge  or  lien. 

It  is  also  provided  that  personal  property  subject  to  any  mort- 
gage, pledge,  or  lien,  may  be  taken  in  execution  in  the  same 
manner  it  may  be  attached,  and  may  be  sold  in  the  same  manner 
as  other  personal  property,  and  the  creditor  and  officer  shall  have 
the  same  right  to  demand  an  account  of  the  amount  due,  and  to 
hold  the  same,  if  no  account  or  a  false  account  is  given,  as  in  case 
of  an  attachment.  The  proceeds  of  the  sale  shall  be  applied  to 
pay  the  sum  paid  or  tendered  to  the  mortgagee,  pledgee,  or  holder, 
and  interest,  and  the  residue  to  the  satisfaction  of  the  execution 
on  which  the  same  is  holden.  The  debtor's  right  to  redeem  such 
property  may  be  taken  on  execution  and  sold  as  in  other  cases, 
without  such  payment  or  tender. 

386.  New  Jersey.  —  Goods  held  in  pledge  may  be  taken  in 
execution  by  a  creditor  of  the  pledgor,  subject  to  the  rights  of  the 
pledgee.  If  the  pledgee  does  not  object  to  the  levy  and  his  claim 
be  satisfied,  it  would  seem  that  a  third  party  could  not  object  to 
it.  But  however  this  may  be  the  claim  of  an  execution  creditor 
is  good  in  equity.^ 

387.  New  York.2 — The  interest  of  the  judgment  debtor  in 
personal  property,  subject  to  levy,  lawfully  pledged  for  the  pay- 
ment of  money,  or  the  performance  of  a  contract  or  agreement, 
may  be  sold  in  the  hands  of  the  pledgee,  by  virtue  of  an  execu- 
tion against  property.  The  purchaser  at  the  sale  acquires  all  the 
right  and  interest  of  the  judgment  debtor,  and  is  entitled  to 
the  possession  of  the  property  on  complying  with  the  terms 
and  conditions,  upon  which  the  judgment  debtor  could  obtain 
possession  thereof.  This  section  does  not  apply  to  property  of 
which  the  judgment  debtor  is  unconditionally  entitled  to  the 
possession. 

Even  before  the  enactment  of  this  statute  it  was  held  that  the 
interest  of  a  pledgee  might  be  attached  or  taken  in  execution  in  an 
action  against  him.  The  purchaser,  however,  only  obtained  his 
interest.^    This  was  asserted  upon  the  ground  that  the  pledgee  in 

^  Mechanics'  Building  and  Loan  ^  g^ul  v.  Kruger,  9  How.  (N.  Y.) 
Asso.  V.  Conover,  14  N.  J.  £q.  219.  Pr.  669. 

2  4  R.  S.  1882,  §  1412  of  Code  of 
Civil  Procedure.  303 


§  388.]     pledgor's  rights  and  liabilities  before  default. 

possession  is  armed  with  the  whole  power  and  all  the  remedies  of 
the  law  to  protect  his  possession,  and  support  his  claim. 

The  sheriff  in  levying  an  execution  upon  the  interest  of  a 
pledgor  may  take  actual  possession  of  the  goods,  and  hold  them 
until  he  sells  them.  But  after  the  sale  the  pledgee  is  entitled  to 
possession  until  the  purchaser  redeems  them  from  the  pledge.^ 

388.  Pennsylvania.  —  Property  held  in  pledge  may  be  sold 
on  execution  against  the  pledgor,  but  the  sale  must  be  subject 
to  the  rights  and  interests  of  the  pledgee.^  The  property  cannot 
rightfully  be  taken  from  the  possession  of  the  pledgee  either  by 
the  sheriff  before  the  sale  or  by  the  purchaser  after  the  sale  ;  and 
if  it  be  so  taken  the  pledgee  may  recover  the  property  in  replevin 
or  its  value  in  trover. 

Goods  held  in  pledge  may  also  be  attached  by  the  process  of 
foreign  attachment,  or  garnishment ;  but  in  such  case  the  pledgee's 
right  to  sell  the  pledge  upon  default,  or  even  before  that  if  by  law 
or  custom  he  has  a  right  to  sell  before,  is  not  impaired.  Thus  if 
a  factor  make  advances  upon  goods  sent  him  by  his  consignor,  and 
they  are  attached  by  process  of  foreign  attachment  by  a  creditor 
of  the  consignor,  the  attachment  does  not  arrest  the  power  of 
the  factor  to  sell,  leaving  the  goods  tied  up  in  his  hands. 

The  factor  has  an  interest  in  the  goods,  with  a  right  to  sell 
which  cannot  be  affected  by  an  after  attachment.  "  The  attach- 
ing creditor  stands  upon  no  higher  footing  than  his  debtor  in  re- 
lation to  the  garnishee.  What  right  would  the  debtor  himself 
have  to  say  to  the  garnishee,  'you  shall  not  sell,'  without  tender- 
ing him  his  advances  and  making  him  whole  ?  Even  an  execution 
cannot  be  levied  of  goods  in  pawn,  so  as  to  take  them  out  of  the 
pawnee's  possession,  without  tendering  him  the  money  for  wliich 
he  holds  them  in  pledge.  So  here  the  garnishee,  as  factor  to  sell, 
having  made  advancements,  had  a  power  coupled  with  an  in- 
terest which  was  irrevocable  except  upon  a  tender  of  his  charges. 
Added  to  the  injury  to  him  by  protracted  storage,  a  fall  in  price 
might  leave  his  advances  partially  unprotected.  If  the  plaintiff 
was  desirous  to  retain  the  goods  for  an  advance  in  price  it  was 

1  Bakewell  v.  Ellsworth,  6  Hill,  St.  432;  Srodes  v.  Caven,  3  Watts, 
N.  Y.  484;  Stief  v.  Hart,  1  N.  Y,  20;  258;  Baugh  v.  Kirkpatrick,  54  Pa. 
Cotton  V.  Watkins,  6  Wis.  629.  St.  84. 

2  Reichenbach  v.  McKean,   95  Pa. 

304 


LIABILITY   OF   HIS  INTEREST   TO   ATTACHMENT,  ETC.      [§§  389-391, 

his  duty  to  furnish  the  money  to  relieve  them  of  the  lien  of  the 
garnishees,  and  to  direct  the  sheriff  to  take  them  into  custody."  ^ 

389.  Tennessee.  —  Property  held  in  pledge  may  be  taken  in 
execution,  or  attached  in  a  suit  against  the  pledgor ;  but  the 
creditor  cannot  so  take  the  property  without  first  discharging 
the  debt  secured  by  the  pledge.^ 

The  fact  that  a  creditor  procures  a  transfer  of  property  held 
in  pledge  in  another  state  to  a  person  residing  in  his  own  state, 
and  thereupon  levies  an  attachment  upon  it  in  a  suit  against  the 
pledgor,  is  not  such  a  fraudulent  device  to  get  the  property 
within  the  jurisdiction  of  the  court,  as  will  avoid  the  attachment.^ 
The  pledgee  may  lawfully  assign  his  interest  in  the  pledge  with- 
out the  knowledge  or  consent  of  the  pledgor,  and  the  assignee 
may  take  possession  of  the  property  and  hold  it  wherever  he  may 
be.  Such  a  transfer  is  not  fraudulent  as  against  the  pledgor,  un- 
less the  intention  and  effect  of  the  transfer  are  to  conceal  the 
property  from  the  debtor  or  to  prevent  his  redeeming  it. 

390.  Texas.*  —  Goods  and  chattels  pledged,  assigned  or  mort- 
gaged as  security  for  any  debtor  or  contract  may  be  levied  upon  and 
sold  on  execution  against  the  person  making  the  pledge,  assign- 
ment, or  mortgage  subject  thereto ;  and  the  purchaser  shall  be 
entitled  to  the  possession  when  it  is  held  by  the  pledgee,  assignee, 
or  mortgagee,  on  complying  with  the  conditions  of  the  pledge, 
assignment,  or  mortgage. 

391.  Vermont.^  —  Any  personal  property  not  exempt  from 
attachment,  subject  to  any  mortgage,  pledge,  or  lien,  may  be  at- 
tached, taken  on  execution,  and  sold  in  the  same  manner  as 
other  personal  property,  except  as  is  herein  otherwise  provided, 
as  the  property  of  the  mortgagor,  pledgor,  or  general  owner. 

The  officer  making  such  attachment,  or  taking  such  property 
on  an  execution  may  demand  of  the  mortgagee,  pledgee  of  such 
property,  or  the  holder  of  such  lien,  an  account  in  writing  and 

^  Baugh  V.  Kirkpatrlck,  54  Pa.  St.  *  National  Bank  t;.  Winston,  5  Baxt. 
84,  [)(!!•  Ajrnevv,  J.  685. 

■^  First  Nat.  Bank  v.  Pettit,  9  Ileisk.         *  R.  S.  1879,  Art.  2'29G,  p.  336. 
44  7.  6  i^aws  1880,   p.  41,  No.  33  ;  R.  L. 

1880,  §§  1180-1185. 

ap^N  iiollMi^ci  Ay^.  305 


§  391.]     pledgor's  rights  and  liabilities  before  default. 

under  oath  of  the  amount  due  upon  the  debt  secured  by  such 
mortgage,  pledge  or  lien,  and  that  the  officer  raay  retain  such 
property  in  his  custody  until  the  same  is  given,  without  tender 
or  payment ;  and  if  such  mortgagee,  pledgee,  or  holder  resides 
in  this  state,  he  shall  render  such  account  within  fifteen  days 
after  such  demand,  and  if  he  resides  without  this  state,  he  shall 
render  such  account  within  thirty  days  after  receiving  a  demand 
in  writing  to  render  such  account.  And  if  such  account  is  not 
rendered  within  the  time  aforesaid,  or  if  a  false  account  is  ren- 
dered, such  property  may  be  holden  and  sold,  -discharged  from 
such  mortgage,  pledge  or  lien. 

If  such  debt  is  due  at  the  time  of  rendering  such  account,  the 
creditor  so  attaching  or  causing  to  be  taken  on  execution  such 
property  may,  within  ten  days  after  such  account  is  rendered  pay 
or  tender  the  amount  so  rendered  to  the  mortgagee,  pledgee  or 
holder  of  such  lien,  and  hold  and  sell  such  property  free  and 
clear  of  such  mortgage,  pledge  or  lien. 

If  such  debt  is  not  due  at  the  time  of  rendering  such  account, 
but  becomes  due  before  the  time  fixed  by  the  officer  making  such 
attachment  or  lev}'  of  execution  for  the  sale  of  such  property, 
such  creditor,  within  ten  daj'S  after  the  debt  becomes  due  and 
before  the  sale  may  pay  or  tender  the  amount  thereof  to  such 
mortgagee,  pledgee,  or  holder  of  such  lien,  and  hold  and  sell  such 
property  as  is  provided  in  the  preceding  section. 

If  such  creditor  shall  pay  or  tender  such  debt  as  is  provided 
in  the  two  preceding  sections  to  the  mortgagee,  pledgee,  or  holder 
of  such  lien,  he  shall  be  subrogated  to  all  the  rights  of  such 
mortgagee,  pledgee,  or  holder,  and  may  cause  the  same  to  be  sold 
in  the  same  manner  that  unincumbered  personal  property  may 
now  be  sold  on  mesne  or  final  process,  and  the  proceeds  of 
such  sale  shall  be  applied  first  in  payment  of  the  sum  paid  by 
such  creditor  to  such  mortgagee,  pledgee  or  holder ;  second,  to 
satisfy  such  execution. 

If  the  debt  secured  by  such  mortgage,  pledge,  or  lien  is  not 
due  at  the  time  fixed  by  such  officer  for  the  sale  of  such  property, 
such  creditor  may  offer  to  pay  such  debt  to  the  mortgagee, 
pledgee,  or  holder  of  such  lien  ;  and  if  such  mortgagee,  pledgee, 
or  holder  shall  refuse  to  receive  the  same,  such  property  may  be 
sold,  subject  to  such  mortgage,  pledge  or  lien,  and  the  purchaser 
of  such  property  at  such  sale  shall  take  by  such  sale  all  the  right, 
306 


LIABILITY   OF   HIS  INTEREST   TO   ATTACHMENT,    ETC.       [§  392. 

title  and  interest  that  the  mortgagor,  pledgor  or  general  owner 
of  said  property  had  in  and  to  the  same,  and  shall  be  subject 
to  the  same  duties  and  obligations  in  regard  to  such  property  as 
the  mortgagor,  pledgor,  or  general  owner  was  under  at  the  time 
of  such  attachment  or  taking  on  execution. 

392.  Wisconsin.^  —  When  goods  and  chattels  shall  be  pledged 
or  mortgaged  for  the  payment  of  money,  or  the  performance  of  any 
contract  or  agreement,  the  right  and  interest  in  such  goods  of 
the  pei-son  making  such  pledge  or  mortgage  may  be  sold  on  ex- 
ecution against  him,  and  the  purchaser  shall  acquire  all  his  right 
and  interest,  and  shall  be  entitled  to  the  possession  of  such  goods 
and  chattels  on  complying  with  the  terms  and  conditions  of  the 
pledge  or  mortgage  ;  but  the  officer  shall  not  take  such  property 
out  of  the  possession  of  the  pledgee  or  mortgagee  when  the 
judgment  debtor  is  not  entitled  to  the  possession  thereof,  unless 
the  judgment  creditor  or  purchaser  shall  have  first  complied  with 
the  terms  and  conditions  of  such  pledge  or  mortgage. 

1  R.  S.  1878,  c.  130.  §  2988. 

307 


CHAPTER  XL 

THE   pledgee's   EIGHTS   AND  LIABILITIES  BEFOEE  DEFAULT. 

I.  His  right  to  the  use  and  profits  of  the  I  III.  His  right  to  assign  the  pledge,  418-428. 

thing  pledged,  393-402.  IV.  His  right  of  action  for  a  conversion  of 

II.  His  duty  to  care  for  the  thing  pledged,  the  pledge,  429-436. 

403-417.  I 

I.  His  Right  to  the  Use  and  Profits  of  the  Thing  Pledged. 

393.  All  collateral  security,  of  whatever  it  may  consist,  is 
held  in  trust,  first  to  apply  the  proceeds  of  it  towards  the  pay- 
ment of  the  debt ;  and  secondly,  upon  the  payment  of  the  debt 
in  full  from  other  funds,  to  restore  the  property,  or  aii}'  proceeds 
thereof  which  may  have  been  received,  to  the  pledgor.^  Upon 
this  subject  the  Code  of  Louisiana  well  expresses  not  only  the 
civil  law  but  the  common  law  as  well.  It  declares  that  until  the 
debtor  be  divested  of  his  property  he  remains  the  proprietor  of  the 
pledge,  which  is  in  the  hands  of  the  creditor  only  as  a  deposit  to 
secure  his  privilege  on  it.  The  creditor  is  answerable  for  the  loss 
or  decay  of  the  pledge  which  may  happen  through  his  fault.  On 
his  part  the  debtor  is  bound  to  pay  to  the  creditor  all  the  usual 
and  necessary  expenses  which  the  latter  has  made  for  the  preser- 
vation of  the  pledge.  The  fruits  of  the  pledge  are  deemed  to 
make  a  part  of  it,  and  therefore  they  remain,  like  the  pledge,  in 
the  hands  of  the  creditor ;  but  he  cannot  appropriate  them  to  his 
own  use;  he  is  bound,  on  the  contrary,  to  give  an  account  of 
them  to  the  debtor  or  to  deduct  them  from  what  may  be  due  to 
him. 

If  it  is  a  credit  which  has  been  given  in  pledge,  and  if  this 
credit  brings  interest,  the  creditor  shall  deduct  this  interest  from 
that  which  may  be  due  to  him ;  but  if  the  debt  for  the  security 
of  which  the  claim  has  been  given  brings  no  interest  itself,  the  de- 
duction shall  be  made  on  the  principal  of  the  debt.     If  the  credit 

1  Felton  V.  Brooks,  4  Cush.  (Mass.)     wood  v.   Brown,   34   Mich.  4;    Union 
203,  per  Shaw,  C.  J.;  and  see  Black-     Trust  Co.  v.  Regdon,  93  III.  458. 
308 


RIGHT   TO   USE   AND   PROFITS   OF   THING   PLEDGED. 


[§  394. 


which  has  been  given  in  pledge  becomes  due  before  it  is  redeemed 
by  the  person  pawning  it,  the  creditor,  by  virtue  of  the  transfer 
which  has  been  made  to  him  shall  be  justified  in  receiving  the 
amount  and  in  taking  measures  to  recover  it.  When  received, 
he  must  apply  it  to  the  payment  of  the  debt  due  to  himself,  and 
restore  the  surplus,  should  there  be  any,  to  the  person  from  whom 
he  held  it  in  pledge.^ 


394.  A  pledgee  has  no  right  to  use  the  pledged  chattel,  if 
his  use  of  it  will  wear  or  injure  it,  so  as  to  lessen  its  value.^  Thus 
if  clothes  be  pawned  the  pawnee  cannot  wear  them  because  they 
will  be  the  worse  for  the  wearing.  And  so  if  the  thing  held  in 
pawn  be  peculiarly  liable  to  loss,  though  with  careful  use  its 
value  might  not  be  impaired,  the  use  of  it  by  the  pledgee  is  prac- 
tically prohibited,  because  he  can  only  use  it  at  his  peril. ^  Thus 
jewels  held  in  pawn  may  be  worn,  if  the  pawnee  takes  care  not 
to  lose  or  injure  them.'*  But  the  pawnee  would  be  responsible 
for  a  loss  through  theft  or  otherwise,  which  might  happen  in  the 
wearing  ;  for  a  pawn  is  so  far  in  the  nature  of  a  depositum,  that 
it  cannot  be  used  but  at  the  peril  of  the  pawnee.^  But  the  prop- 
erty may  be  of  such  a  nature  that  a  reasonable  use  of  it  by  the 
pledgee  may  be  not  only  justifiable,  but  necessary  for  the  proper 
care  of  it ;  and  in  that  case  a  use  of  it  will  be  a  duty  on  his  part.® 


1  R.  Civ.  Code  1870,  Arts.  3166- 
3170. 

2  McArthur  v.  Howett,  72  111.  358, 
(case  of  a  sewing  machine) ;  Thomp- 
son V.  Patrick,  4  Watts  (Pa.),  414, 
(case  of  a  harness). 

The  Code  of  the  State  of  Georgia, 
1873,  §  2141,  provides  that  the  pawnee 
may  use  the  goods  pawned,  provided 
the  use  does  not  impair  their  real  value. 

8  Story  on  Bailm.  §  330. 

*  Jones  on  Bailin.  81.  Judge  Story 
doubts  whether  there  is  any  founda- 
tion for  the  doctrine  that  in  case  of  a 
deposit  of  things  which  are  not  hurt 
by  use,  the  depositary  may,  at  bis 
peril,  use  them.     Bailm.  §  330. 

^  Coggs  V.  Bernard,  2  Ld.  Raym. 
909,  9 1 7.  Chief  Justice  Holt  said  :  "  If 
the  pawn  be  such  as  it  will  be  the  worse 
for  using,  the  pawnee  cannot  use  it, 


as  clothes,  &c. ;  but  if  it  be  such  as 
will  be  never  the  worse,  as  if  jewels 
for  the  purpose  were  pawned  to  a 
lady,  she  might  use  them.  But  then 
she  must  do  it  at  her  peril;  for  where- 
as, if  she  keeps  them  locked  up  in 
her  cabinet,  if  her  cabinet  should  be 
broken  open,  and  the  jewels  taken 
from  thence  she  would  be  excused;  if 
she  wears  them  abroad  and  is  there 
robbed  of  them  she  will  be  answer- 
able. And  the  reason  is,  because  the 
pawn  is  in  the  nature  of  a  deposit, 
and  as  such  is  not  liable  to  be  used." 
Judge  Story  criticises  this  reasoning, 
saying  that  instead  of  showing  that  a 
pawnee  may  lawfully  use  the  jewels, 
it  shows  that  he  has  no  right  to  do  so. 
Bailm.  §  330. 

^  Jones    on   Bailm.    81  ;    Story   on 
Bailm.  §  329. 

309 


§§  395-397.]   pledgee's  rights  and  liabilities  before  default. 

395.  If  the  pledge  be  of  such  a  nature  that  it  is  an  ex- 
pense to  the  pledgee  to  keep  it,  says  Chief  Justice  Holt,  as  if 
it  be  a  horse  or  a  cow,  he  may  use  the  horse,  or  milk  the  cow,  by 
way  of  recompense  for  the  keeping.^  But  although  such  use  of  the 
pledge  is  spoken  of  as  a  recompense  for  the  keeping,  the  consist- 
ent course  is  to  require  the  pledgee  to  account  to  the  pledgor  for 
the  use  he  has  made  of  the  pledge,  and  at  the  same  time  to  allow 
the  pledgee  to  charge  the  pledgor  for  the  reasonable  expense  of 
keeping  and  maintaining  the  pledge.^ 

In  Georgia  it  is  provided  by  the  Code  that  the  pawnor  must 
pay  all  necessary  expenses  and  repairs  upon  the  property,  but  if 
the  pawn  itself  has  been  profitable,  or  if  the  pawnee  has  used  it 
to  his  own  advantage,  the  pawnor  may  require  him  to  account  for 
such  profits. 

396.  The  pledgee  is  accountable  for  whatever  profit  may 
accrue  to  him  from  the  use  or  possession  of  the  pledge. 
Thus  he  is  accountable  for  the  value  of  the  labor  of  a  slave  held 
in  pledge.^ 

A  pledgee  is  entitled  to  hold  the  natural  increase  of  the  thing 
pledged.  Thus  if  he  has  taken  in  pledge  domestic  animals,  he 
will  hold  in  pledge  the  young  of  such  animals  afterwards  born. 
He  is  accountable  also  for  any  moneys  he  may  receive  or  collect 
by  virtue  of  his  holding  the  pledge.  Thus,  if  a  policy  of  in- 
surance upon  mortgaged  property  be  assigned  to  the  mortgagee 
as  further  security  for  the  mortgage  debt,  upon  the  payment  of 
that  debt,  the  policy  reverts  to  the  original  owner ;  and  if  the 
assignee  of  the  policy  afterwards  collects  a  return  premium 
thereon,  the  pledgor  may  recover  the  amount  from  him.* 

397.  If  money  be  pledged,  and  the  pledgee  loan  it,  he 
is  accountable  for  the  interest  received  therefor.    Althoucrh  the 

o 

pledgee  has  given  his  receipt  in  writing  for  the  money  received 

^  Coggs   V.  Bernard,  2    Ld.  Raym.  that  laid  down  by  Lord  Holt.     Bail- 

909,  917;  and  see  Mores  v.  Conham,  ments,  82;  Code  1873,  §2146. 

Owen,  123.  ^  Geron    v.    Geron,    15    Ala.    558; 

2  Such  is  the  Roman  and   French  Houton  v.  HoUiday,  2  Murpli.  (N.  C.) 

law,  according  to  Sir  AVilliam  Jones,  111  ;  Woodard  v.  Fitzpatrick,  9  Dana 

who  declares  this  rule  to  be  more  agree-  (Ky.),  117,  120. 

able   to   principle   and    analogy  than  *  Felton  v.  Brooks,  4  Cush.  (Mass.) 

203  ;    Merrifield   v.    Baker,    9    Allen 

310  (Mass.),  29. 


RIGHT   TO   USE  AND   PROFITS   OF  THING   PLEDGED.  [§  398. 

in  pledge,  if  this  contains  no  provision  in  regard  to  interest, 
parol  evidence  is  admissible  to  show  the  facts  that  create  such 
liabilit3^  Such  evidence  does  not  vary  the  written  contract,  for 
the  receipt  of  the  interest  is  subsequent  to  the  contract,  and  the 
pledgee's  obligation  to  pay  it  does  not  rest  upon  the  contract  or 
upon  any  agreement  contemporaneous  with  it.  He  is  liable  for 
the  interest  because  it  is  an  incident  of  the  pledge,  and  as  a  mat- 
ter of  law  he  is  bound  to  restore  to  the  pledgor  the  increment 
of  the  pledge  as  much  as  the  pledge  itself.^ 

398.  Dividends  accruing  upon  pledged  stock  belong  to 
the  pledgee.2  A  pledgee  is  entitled  to  collect  a  cash  dividend 
upon  stock,  and  to  hold  it  as  he  holds  the  stock  itself.^  If 
he  omits  to  obtain  a  transfer  upon  the  books  of  the  corpora- 
tion, the  corporation  is  of  course  justified  in  paying  the  dividends 
to  the  pledgor  ;  but  he  is  a  trustee  of  the  pledgee  therefor,  and 
must  account  to  him.*  "  The  dividends  follow  the  legal  title  in 
such  a  case  as  between  the  parties,  for,  until  the  corporation  is 
wound  up,  all  there  is  of  a  share  is  a  right  to  future  profits  or 
dividends."  If  the  pledgor  collects  the  dividends,  an  action  to 
recover  them  may  be  maintained  by  the  pledgee.^  If  a  corpora- 
tion unjustifiably  refuse  to  make  a  transfer  of  stock  upon  its 
books  of  stock  which  the  owner  has  pledged  by  delivery  of  the 

^  Gilson  V.  Martin,  49  Vt.  474.  ferring  a  contract  to  pay  over  to  the 
^  Hunsaker  v.  Sturgis,  29  Cal.  142.  plaintiff  the  money  received.     But  in 
8  Hagar  v.   Union    Nat.  Bank,   63  the  case  at  bar,  these  dividends,  as 
Me.  50D.  we   have   seen,  by  contract  between 
*  Merchants'    Nat.    Bank   v.   Rich-  plaintiff  and  defendant,  belonged   to 
ards,  6  Mo.  App.  454  ;  Gaty  v.   Hoi-  plaintiff   as  pledgee  of  the   stock   on 
liday,  8    lb.    118;    Bell    v.    Lafferty,  which  they  were  paid;  and  if  received 
1  Pennypacker  (Pa.),  454;  Herrman  by   defendant   from    the   company,   it 
V.   Maxwell,   4  7    N.  Y.   Superior   Ct.  must  be  regarded  that  they  were  re- 
347.     The    court    do    not    rely    upon  ceived  by  him  to  plaintiff's  use.    Lord 
Hill  V.  Newichawanick  Co.   48  How.  Ellenborough  says  broadly  in  Hudson 
(N.    Y.)    Pr.    427  ;    S.    C.    8    Hun.  v.  Richardson,  4   M.   &    S.  478,  that 
459,  because  under  the  facts  in  that  '  an  action   for    money  had   and   re- 
case    the    dividends    passed    to    the  ceived   is  maintainable  wherever  the 
pledgee,  not  by  operation  of  law,  but  money  of  one  man  has,  without  con- 
by  the  consent  of  the  pledgor.  sideration,    got    into    the    pocket    of 
^  Gaty    V.    Holliday,    8    Mo.    App.  another.'     However  this  may  be,  it  is 
118,120.    Bakewell,  J.,  said:  "The  certain  that   in   many  such  cases  the 
action    for    money  had   and  received  law    im[)Iies    a    promise    to    pay    the 
cannot  be  maintained  where  no  legal  money  to  the  real  owner." 


ground  whatever  can  be  shown  for  in- 


311 


§§  399,  400.]  pledgee's  rights  and  liabilities  before  default. 

certificate  with  a  power  to  transfer,  the  pledgee  may  recover  of 
the  corporation  by  suit  any  dividends  accruing  upon  the  stock 
while  he  held  it  in  pledge.^  It  is  not  only  the  right  of  the 
pledgee  to  collect  the  dividends  in  such  case,  but  his  duty  to  his 
pledgor  to  do  so,^ 

A  pledgee  is  of  course  accountable  for  any  profits  he  may 
make  from  a  sale  and  purchase  of  stock  while  he  holds  it  in 
pledge.^ 

399,  In  like  manner  a  pledgee  of  bonds  with  interest 
coupons  attached  is  entitled  to  collect  the  interest  as  it  be- 
comes payable,  and  if  the  principal  debt  be  not  due  he  will  hold 
the  money  on  the  same  terms  that  he  holds  the  bonds.*  If 
a  corporation  pledge  its  own  negotiable  bonds  with  interest 
coupons  attached,  and  the  pledgee  collects  from  the  agents  of 
the  corporation  the  coupons  that  fall  due,  his  act  is  not  a  con- 
version of  the  bonds.^  The  payment  by  the  corporation  is  a 
voluntary  one  made  with  knowledge  or  with  means  of  knowl- 
edge of  the  whole  matter ;  and  though  the  principal  debt  had 
not  matured,  the  pledgee  would  be  presumed  to  have  the  right 
to  collect  the  maturing  coupons  in  the  absence  of  any  express 
agreement  that  he  should  not  do  so ;  for  the  interest  is  payable 
by  the  terms  of  the  collateral  bonds,  and  a  part  of  the  value  of 
the  collateral  arises  from  this  fact. 

A  pledgee  of  any  interest-bearing  securities  is  entitled  to  col- 
lect and  receive  the  interest  as  it  becomes  payable,  and  he  will 
hold  the  sums  collected  on  the  same  terms  as  he  holds  the  secu- 
rities themselves.^  It  is  immaterial  in  this  respect  whether  the 
collateral  security  be  a  promissory  note,  a  corporate  bond,  or 
shares  in  a  corporation. 

400.  A  pledgee  is  entitled  to  all  reasonable  expenses  in- 
curred in  keeping  and  caring  for  the  pledge."  He  is  also  entitled 
to  be  reimbursed  for  all  payments  made  to  protect  the  property 


*  Merchants'   Nat.   Bank    v.   Rich-  ^  Androscoggin    R.  R.   Co.  t;.  Au- 

ards,  6  Mo.  App.  454.  burn  Bank,  supra. 

2  Gaty  y.  HoUiday,  8  Mo.  App.  118.  ^  Androscoggin   R.  R.   Co.  v.  Au- 

Per  Bakewell,  J.  burn  Bank,  supra. 

8  Hunsaker  v.  Sturgis,  29  Cal.  142.  ''  Starrett   v.  Barber,  20   Me.  457  ; 

4  Androscoggin   R.    R.   Co.  v.   Au-  Hills  v.  Smith,  28  N.  H.  369. 
burn  Bank,  48  Me.  335. 

312 


RIGHT   TO    USE   AND   PROFITS   OF   THING   PLEDGED.      [§§401,402. 

from  prior  liens  or  incumbrances,  and  for  all  necessary  payments 
made  in  any  other  way  to  preserve  or  protect  the  security.  Thus, 
if  a  pledgee  of  a  policy  of  insurance  advances  money  for  the  pay- 
ment of  premiums  during  the  continuance  of  the  pledge,  he  is  en- 
titled to  be  credited  the  amount  of  such  payments  in  his  account 
with  his  debtor.i  Assessments  rightfully  paid  by  a  creditor 
upon  stock  pledged  to  him  as  collateral  security  are  charges  in 
the  nature  of  expenses,  and  must  be  refunded  by  the  debtor,  as 
a  condition  precedent  to  reclaiming  the  pledge.^ 

401.  Where  the  property  pledged  comes  into  tlie  credi- 
tor's possession  in  an  unfinished  state,  such  that  a  court  of 
chancery  would  order  it  finished  by  a  receiver,  and  the  creditor 
does  in  that  respect  what  the  court  would  have  ordered  a  receiver 
to  do,  while  the  creditor  is  properly  chargeable  with  the  avails  of 
the  finished  goods,  although  finished  with  his  property  and  by 
his  means,  he  is  nevertheless  entitled  to  have  such  avails  applied 
in  the  first  place  to  the  payment  of  his  disbursements  upon  the 
property,  before  any  application  is  made  upon  the  debt ;  and  any 
equity  acquired  by  an  attachment  of  such  unfinished  property  by 
another  creditor  of  the  pledgor  as  the  property  of  the  latter,  is 
subordinate  to  such  equity  of  the  pledgee.^ 

402.  But  a  pledgee  has  no  right  to  manufacture  finished 
goods  from  new  material  pledged  to  him,  and  charge  the 
pledgor  with  the  cost  of  manufacture,  except  by  virtue  of  an  ex- 
press contract.  Thus,  one  who  has  made  advances  to  a  lumber- 
man, and  taken  as  security  a  lien,  by  written  contract,  upon 
lumber  to  be  forwarded  by  the  lumberman  "  until  the  same  is 
finally  marketed  and  payment  received  therefor,"  is  not  author- 
ized to  manufacture  the  lumber  at  the  risk  of  the  debtor,  and  to 
account  only  for  the  net  proceeds,  provided  the  proceeds  do  not 
amount  to  the  market  value  of  the  lumber  at  the  time  the  ci'edi- 
tor  received  possession  of  it  under  the  contract.^ 

^  Raley  v.  Ross,  59  Ga.  862.  8  Rowan  v.  State  Bank,  45  Vt.  160. 

2  McCalla  v.  Clark,  55  Ga.  53.  *  Boody  v.  Goddard,  57  Mo.  602. 

313 


§§  403,  404.]   pledgee's  rights  and  liabilities  before  default. 

II.  His  Duty  to  Care  for  the  Thing  Pledged. 

403.  A  pledgee  is  bound  to  use  ordinary  diligence  in  the 
care  and  custody  of  the  thing  pledged.^  What  diligence  is 
required  in  any  particular  case  depends  upon  the  character  of 
the  thing  pledged,  and  the  circumstances  attending  it.  In 
general,  it  may  be  said  that  a  pledgee  is  bound  to  exercise 
the  degree  of  care  which  an  ordinarily  prudent  man  usually 
bestows  upon  his  own  property  of  a  like  nature  under  like  cir- 
cumstances ;  and  he  is  liable  for  any  loss  or  injury  resulting  to 
the  pledge  from  a  failure  to  use  such  care. 

404.  That  a  pledgee  takes  the  same  care  of  the  pledge 
that  he  does  of  his  own  property  is  not,  however,  the  test  of  his 
liability  for  its  loss  or  destruction.  It  is  true  that  Sir  Edward 
Coke  laid  down  this  rule,  saying :  "If  goods  be  delivered  to  one 
as  a  gage  or  pledge,  and  they  be  stolen,  he  shall  be  discharged, 
because  he  hath  a  property  in  them  ;  and,  therefore,  he  ought  to 
keep  them  no  otherwise  than  his  own."^  Sir  William  Jones, 
referring  to  this  statement,  said  :  "  I  deny  the  first  proposition, 
the  reason,  and  the  conclusion."  Thereupon  he  proceeds  to  state 
the  true  rule  of  diligence  required  from  a  pledgee :  ^  "  Since 
the  bailment  is  beneficial  to  the  pawnee  by  securing  the  pay- 
ment of  his  debt,  and  to  the  pawnor  by  procuring  him  credit, 
the  rule  which  natural  reason  prescribes,  and  which  the  wisdom 
of  nations  has  confirmed,  makes  it  requisite  for  the  person  to 
whom  a  gage  or  pledge  is  bailed  to  take  ordinary  care  of  it ;  and 
he  must  consequently  be  responsible  for  ordinary  neglect."  If 
he  takes  less  care  of  the  pledged  property  than  he  does  of  his 
own  he  is  answerable  for  its  loss.  Thus,  if  he  puts  his  own 
goods  into  an  iron  chest  or  safe,  and  leaves  property  of  the  same 
kind,  held  in  pledge,  without  this  protection  from  theft,  and  it  is 

1  Coggs  V.  Bernard,  2  Ld.  Raym.  perfectly  aware  that  lie  copied  Jus- 
909;  Third  Nat.  Bank  v.  Boyd,  44  tinian  almost  word  for  word."  Bract. 
Md.  47;  Maury  v.  Coyle,  34  Md.  235  ;     99  b. 

Girard  Fire  and   Marine   Ins.  Co.  v.  See,  in  this  connection,  the  criticism 

Marr,  46  Pa.  St.  504.  of  Judge  Story,   both  upon  the  con- 

2  Southcote's  Case,  4  Rep.  83  b.  elusion  of  Sir  Edward  Coke  and  some 
2  Bailments,     75.       "This    is    ex-  of  the  statements  of  SirWilliam  Jones, 

pressly    holden     by    Bracton  ;      and.     Story  on  Bailm.  §§  334-337. 
when  I   rely  on  his  authority,   I   am 

314 


HIS   DUTY   TO   CARE   FOR   THE   THING  PLEDGED.  [§  405. 

stolen,  be  is  responsible  for  the  loss.^  Of  course,  if  through  the 
pledgee's  negligence  his  own  property,  as  well  as  that  held  in 
pledge,  be  stolen,  he  is  not  absolved  from  responsibilitj-^  for  the 
latter.  The  fact  that  he  has  taken  the  same  care  of  the  pledged 
goods  that  he  did  of  his  own,  while  both  are  lost  by  theft,  may 
furnish,  primd  facie.,  a  presumption  of  ordinary  diligence  on  his 
part.2 

A  pawnbroker  holding  jewelry  in  pawn  kept  it  in  a  drawer, 
locked,  underneath  his  counter.  His  shop  was  broken  into  by 
burglars,  and  this,  together  with  other  property,  was  stolen.  In 
an  action  by  the  owner  of  the  property  against  the  pawnbroker, 
the  only  question  of  fact  was  whether  the  defendant  exercised 
ordinary  diligence  in  the  care  of  the  property,  and  this  fact  hav- 
ing been  found  in  favor  of  the  defendant,  judgment  was  rendered 
for  him.^ 

405.  In  the  case  of  an  ordinary  pledge,  the  pledgee  is  not 
liable,  if  the  property  be  destroyed  without  fault  or  neglect 
on  his  part.  If  the  common  law  contract  of  a  pledge  were  re- 
duced to  writing,  it  would  contain  among  other  things  a  stipu- 
lation that  the  pledgee  should  not  be  responsible  for  the  loss  of 
the  property,  unless  some  want  of  reasonable  and  ordinary  care 
on  his  part  were  the  cause  of  the  loss. 

The  pledgee  is  in  effect  a  trustee  for  the  pledgor,  to  return  the 
property,  on  payment  of  the  debt  secured,  and  if  this  be  not  paid, 
then  to  dispose  of  the  thing  pledged,  and  after  paying  the  debt 
secured,  to  pay  over  the  surplus  to  the  debtor.  While  the  prop- 
erty is  in  the  possession  of  the  pledgee  he  should  treat  it  as  trust 
property,  and  not  deal  with  it  so  as  to  impair  or  destroy  its  value, 
or  incur  the  loss  of  it.* 

If  the  pledge  be  lost  while  rightfully  in  the  pledgee's  hands 
through  any  unavoidable  accident,  the  loss  falls  upon  the  pledgor. 
But  the  case  is  otherwise  if  such  a  loss  happens  after  it  has  be- 
come the  pledgee's  duty  to  return  the  property,  and  he  is  holding 
it  without  right.     "If   the  money  for  which   the   goods  were 

1  Verer.  Smith,  1  Vent.  121;  Syred  «  Abbett  v.  Frederick,  56  How. 
V.  Carruthers,  El.  B.  &  E.  469;  Petty     (N.  Y.)  Pr.  68. 

r.  Overall,  42  Ala.  145.  •*  Union    Trust    Co.   v.  Rigdon,   93 

2  Story  on  Bailm.  225.     See,  also,     111.  458. 
Petty  V.  Overall,  supra. 

315 


§§  406, 407.]   pledgee's  rights  and  liabilities  before  default. 

pawned  be  tendered  to  the  pawnee  before  they  are  lost,  then  the 
pawnee  shall  be  answerable  for  them  ;  because  the  pawnee,  by- 
detaining  them  after  the  tender  of  the  money,  is  a  wrong-doer, 
and  is  a  wrongful  detainer  of  the  goods,  and  the  special  property 
of  the  pawnee  is  determined.  And  a  man  that  keeps  goods  by 
wrong  must  be  answerable  for  them  at  all  events  ;  for  the  de- 
taining of  them  by  him  is  the  reason  of  the  loss."-^ 

If  perishable  goods  be  pledged  the  pledgee  is  bound  to  ordin- 
ary diligence  in  the  care  of  them ;  but  if  the  pledgor  leave  them 
in  pledge  until  they  perish  naturally  the  loss  will  fall  upon  him, 
and  the  pledgee  may  maintain  an  action  for  his  loan.^ 

If  one  of  several  things  pledged  be  lost  without  the  pledgee's 
fault,  the  rest  of  the  things  remain  liable  for  the  whole  debt.^ 

406.  The  pledgee's  obligation  to  care  for  the  pledge  may 
be  modified  by  the  express  contract  of  the  parties  ;  and  then 
his  obligation  in  this  regard  is  to  be  measured  and  ascertained 
by  the  particular  intent  of  the  parties,  and  not  by  the  general 
rule  applicable  to  a  simple  and  unqualified  pledge ;  and  such  intent 
is  to  be  gathered  not  only  from  the  express  agreement,  but  from 
the  circumstances  of  the  case,  including  the  conduct  of  the  parties 
during  the  continuance  of  the  pledge.  Thus  where  advances 
were  made  to  wheat  dealers  in  Portland,  Oregon,  upon  wheat 
stored  by  the  pledgor  in  warehouses  situated  on  the  river  front, 
and  the  receipt  contained  a  clause  that  in  case  of  a  flood  the 
property  was  to  be  at  the  risk  of  the  owner ;  and  the  wheat  was 
injured  by  a  flood  while  the  pledgor  was  assuming  the  care  of  it, 
it  was  held  that  the  pledgee  was  not  responsible  for  the  loss. 
The  pledgor  was  regarded  as  taking  upon  himself  the  risk  of 
floods  while  the  wheat  was  owned  by  him  and  stored  in  these 
warehouses.* 

407.  It  is  competent  for  the  parties  to  stipulate  for  a  dif- 
ferent degree  of  liability  from  that  which  would  attach  in  the 
absence  of  an  express  contract.     Thus  if  the  pledgor  places  the 

^  Coggs  V.  Bernard,   2   Ld.  Raym.  also  a  finding  in   this  case   that  the 

909,  917,  per  C.  J.  Holt.  pledgee  was  not  guilty  of  any  negli- 

2  Thomason  v.  Dill,  30  Ala.  444.  gence,  even  if  he  could  be  regarded 

8  Ratclift"  V.  Davis,  Yel.  178.  as  an  unqualified  pledgee,  and  as  such 

*  Bank  of  British  Columbia  v.  Mar-  bound  to  use  ordinary  care  and  dili- 

shall,  11   Fed.  Rep.  19.     There  was  gence  to  prevent  injury  by  a  flood. 

316 


HIS   DUTY    TO   CARE   FOR   THE   THING   PLEDGED.        [§§  408,  409. 

goods  he  has  pledged  in  a  warehouse  selected  by  himself,  and 
stipulates  that  they  are  stored  at  his  risk  and  expense,  the  pledgee 
is  relieved  of  his  usual  responsibility  so  long  as  the  goods  remain 
stored  in  the  place  designated.  But  in  a  case  of  this  kind,  Avhere 
the  keeper  of  the  warehouse  on  account  of  some  injury  to  it  removed 
the  goods  without  the  knowledge  of  the  pledgee  to  another  place 
which  was  unfit  for  their  storage  and  damage  resulted  to  the  goods, 
the  pledgee  was  held  responsible  for  it,  on  the  ground  that  the 
keeper  of  the  warehouse  was  the  pledgee's  agent,  and  that  it  was 
his  duty  to  see  that  the  goods  were  kept  stored  in  the  place 
agreed  upon,  or,  if  their  removal  became  necessary,  to  have  them 
stored  in  a  secure  and  proper  place.^ 

408.  Soraetimes  a  pledgee  by  contract  makes  hiraself 
liable  for  the  property,  though  its  loss  or  destruction  be  acci- 
dental and  without  fault  or  neglect  on  his  part.  Thus  if  a  credi- 
tor gives  a  receipt  for  a  chattel  held  by  him  as  collateral  security, 
in  which  he  promises,  on  payment  of  the  debt,  to  deliver  the 
property  to  the  debtor,  or  its  equivalent  in  money,  he  is  liable 
for  the  value  of  the  chattel  though  it  be  destroyed  by  fire  with- 
out his  fault  or  negligence.  His  promise  is  that  he  will  either 
return  the  property  or  pay  its  equivalent.  "  The  fact  that  one 
part  of  this  alternative  promise  has  become  impossible  of  fulfil- 
ment does  not  relieve  him  from  the  other."  ^  He  accepts  the 
security  upon  terms  which  make  him  responsible  for  the  return 
of  the  property  in  any  event.  Omitting  to  attach  to  his  liability 
for  the  property  any  limitation  whatever,  he  places  hiraself  in 
the  position  of  an  insurer  of  its  safety,  and  upon  its  destruction 
without  his  fault  is  liable  for  its  value. 

409.  In  case  of  a  loss  by  theft  from  the  pledgee,  the  rule  of 
his  liability  is  the  same  as  in  case  of  a  loss  in  any  other  manner ; 
he  is  liable  if  he  has  failed  to  exercise  ordinary  care.^  It  has  al- 
ready been  noticed  that  Sir  Edward  Coke  declared  that  if  goods 

1  St.  Losky  V.  Davidson,  6  Cal.  Blatcbf.  362;  Scott  u.  Crews,  2  .S.  C. 
643.  522 ;    Abbett  v.   Frederick,  56    How. 

2  Drake  v.  White,  117  Mass.  10.  (N.  Y.)  Pr.  68;  Jenkins  v.  Nal.  Village 
8  Maury  i;.  Coyle,  34  Md.  235  ;  Third     Bank,  58  Me.  275;  Winthrop  Bank  v. 

Nat.  Bank,  v.  Boyd,  44  Md.  47;  Second     Jackson,  67  Me.  670. 
Nat.  Bank   v.  Ocean   Nat.  Bank,  11 

317 


§  410.]     pledgee's  eights  and  liabilities  before  default. 

be  stolen  from  one  wlio  holds  them  in  pledge,  he  is  discharged  ; 
and  that  Sir  William  Jones  denies  this  proposition.^  The  latter 
even  asserts  the  contrary,  namely,  that  one  who  has  suffered  the 
goods  to  be  stolen  from  him  cannot  be  considered  as  using  ordi- 
nary care.  But  the  better  authority  is  to  the  effect  that  while 
theft  does  not  relieve  the  pledgee  from  responsibility  it  does  not 
of  itself  afford  a  presumption  of  negligence  on  his  part.^  Upon 
payment  or  tender  of  payment  by  the  pledgor,  the  failure  of  the 
pledgee  to  return  the  pledge  throws  upon  him  the  burden  of 
showing  a  good  reason  for  not  returning  it,  or  else  renders  him 
liable  for  a  conversion  of  it.  To  this  extent  the  loss  of  the  pledge 
by  theft,  like  the  loss  of  it  in  any  other  way,  makes  the  pledgee 
prinid  facie  responsible  for  the  loss.  But  in  the  case  of  theft,  as 
well  as  in  case  of  a  loss  in  any  other  way,  the  pledgee  when  called 
upon  to  return  the  pledge  may  show  in  defence  that  the  loss 
occurred  while  he  was  in  the  exercise  of  due  and  ordinary  care. 

The  exercise  of  ordinary  diligence  in  the  care  and  protection 
of  the  thing  pledged  is  the  requirement  made  of  the  pledgee  by 
the  common  law.^  It  is  the  same  requirement  in  this  respect 
that  is  made  of  a  warehouseman.  If  the  property  pledged  has 
been  taken  by  burglars  who  have  broken  into  the  pledgee's  place 
of  business,  the  question  of  the  pledgee's  liability  is  one  of  fact, 
whether  he  exercised  ordinary  diligence  in  his  care  of  the  prop- 
erty.* 

410.  The  holder  of  collateral  security  is  bound  to  take  only 
ordinary  care  of  it.  Thus  if  bonds  payable  to  bearer  be  de- 
posited with  a  bank  as  collateral  security  for  a  loan,  and  the 
bank  using  reasonable  care  and  oversight  places  the  bonds  in  its 
safe  or  vault,  with  other  bonds  and  valuable  papers  of  its  own, 
and  the  vault  is  broken  open  by  burglars,  who  remove  its  con- 
tents, including  the  collateral  bonds,  the  bank  is  not  liable  for  the 
loss.  This  general  rule  of  the  law  of  pledges  is  not  changed  by 
the  giving  of  a  receipt  for  the  bonds  by  the  bank  to  the  debtor, 
"  to  be  returned  to  him  on  the  payment  of  his  note."  Such  a  re- 
ceipt amounts  to  no  more  than  would  be  implied  by  law.    It  does 

1  §  404.  3  Petty  v.  Overall,  42  Ala.  145. 

2  Story  on  Bailm.,  §§  334-338;  2  *  Abbett  v.  Frederick,  5(J  How.  (N. 
Kent's  Com.  580  ;  ScLouler  on  Bailm.  Y.)  Pr.  68 ;  Arent  v.  Squire,  I  Daly 
191.  (N.  Y.),  347. 

318 


HIS  DUTY   TO   CARE   FOR   THE   THING   PLEDGED.  [§  411. 

not  make  the  bank  insurers  of  the  bonds,  and  bound  to  keep  and 
return  them,  whatever  may  happen.  The  common  law  liability 
is  not  changed,  and  that  requires  only  ordinary  care  of  the  secu- 
rities pledged.^ 

411.  What  the  ordinary  care  required  of  a  pledgee  of  such 
securities  is,  depends  upon  a  great  variety  of  circumstances,  and 
is  to  be  determined  by  a  consideration  of  all  the  facts.  The  ques- 
tion is  materially  affected  by  the  value  of  the  securities,  the  lia- 
bility to  loss  by  fire  or  theft,  and  the  precaution  taken  against 
these. ^  It  is  not  enough  for  the  creditor  to  say  that  he  took  the 
same  care  of  the  securities  held  in  pledge  that  he  took  of  like  se- 
curities of  his  own  ;  nor  that  he  lost  at  the  same  time,  by  the 
same  fire  or  theft  similar  securities  of  his  own  to  a  larger  amount. 
There  is,  however,  in  the  absence  of  all  evidence  upon  the  sub- 
ject, a  presumption  in  his  favor  that  he  has  used  ordinary  dili- 
gence as  to  his  own  goods ;  but  when  evidence  to  the  contrary  is 
introduced  he  must  go  farther,  and  show  affirmatively  that  he 
used  ordinary  diligence  and  care  in  protecting  the  lost  securities, 
both  his  own,  and  those  pledged  to  him.^ 

1  Jenkins  v.  Nat.  Village  Bank,  58  neither  responsibility  nor  irresponsi- 

Me.  275;  Wintlirop  Bank  v.  Jackson,  bility  in  the  bailee  or  pawnee.     It  is 

67  Me.  570;  Mills  u.  Gilbreth,  47  Me.  like   any  other   loss.     If   the  theft  is 

320;  Second   Nat.    Bank  of   Erie    v.  occasioned    by    any    negligence,    the 

Smith,    8    Phila.    (Pa.)    68;  S.    C.  3  bailee  is  responsible:    if   without  any 

Brewst.  9,  13.     Judge  Sharswood,  in  negligence    on    his    part,    he   is    dis- 

this  case,  said:  "It  was  at  one  time  charged   from    responsibility.      Ordi- 

supposed,  and  it  had  a  very  eminent  narily  diligence  is  not  disproved  even 

jurist  to  sustain  it,  (Sir  William  Jones)  presumptively,     by    theft,     but     the 

that    private    theft    (theft   as    distin-  proper  conclusion  must  be  drawn  by 

guished  from    public   robbery,  taking  weighing  all   the  circumstances  of   a 

by  violence  or  force)  —  private  theft  particular  case.     And  see  Dearborn  v. 

was  presumptive  evidence  of  ordinary  Union   Nat.    Bank  of  Brunswick,  61 

neglect;  that  the  pawnee,  for  instance.  Me.   369;  Schwerin  w.  McKie,  51   N. 

could  not  come  in  and  say:  'my  pocket  Y.  180. 

was  i)icked,'  or  '  this  article  was  stolen  ^  Third  Nat.  Bank  v.  Boyd,  44  Md. 

out  of  my  house.'    lie  must  prove  dis-  47. 

tinctly  and  positively  that  he  could  not  ^  g^cond    Nat.    Bank    of    Erie    v. 

help  it,  and  that  he  had  taken  every  Smith,    8    Phila.    (Pa.)   68;    S.  C.    3 

precaution.     That  doctrine,  however,  Brew.  9,  per  Sharswood  J.     Dearborn 

has  been  repudiated;  and  it  may  be  v.  Union  Nat.  Bank,  58   Me.  273;  S. 

stated  now  as  the  rule  at  present  re-  C.  61  Me.  369.     See  this  last  case  as 

ceived  and  acted  upon,  that  theft  per  to   form  of  action,  whether  trover  or 

se,  or  the  mere  fact  of  theft,  establishes  assumpsit. 

319 


§  412.]        pledgee's  rights  and  liabilities  before  default. 

412.  Ordinary  diligence  is  a  relative  term,  and  as  applied  to 
the  care  of  a  pledge  denotes  that  care  which  men  of  common  pru- 
dence generally  take  of  like  articles  of  their  own,  at  the  time  and 
in  the  place  where  the  question  arises.  This  point  was  discussed 
in  a  case  ^  where  bank  bills  pledged  to  bankers  were  deposited  by 
them  in  their  safe,  and  were  stolen  by  robbers  who  broke  open 
the  safe  at  night  and  carried  away  the  bills.  The  pledgor  when 
sued  for  the  debt  set  up  by  way  of  counter  claim  the  value  of  the 
pledge  not  returned,  and  claimed  that  the  pledgees  could  not  be 
said  to  have  exercised  ordinary  care,  unless  it  should  be  found 
that  they  had  availed  themselves  of  all  the  means  for  securing 
the  safety  of  the  pledge  when  deposited  in  their  safe.  The  court 
in  refusing  to  require  this  degree  of  diligence,  said  :  "  If  the  law 
requires  the  bailee  of  a  pledge  to  provide  himself  with  all  the 
mechanical  improvements  of  the  age,  to  protect  him  from  the  con- 
sequences of  a  loss  of  the  property  by  theft,  then,  instead  of  be- 
ing bound  to  ordinary  care,  he  would  be  held  to  extraordinary 
diligence,  which  is  only  required  in  a  bailment  for  the  sole  benefit 
of  the  bailee.  .  .  .  Where  one  holds  himself  out  to  the  community 
as  a  banker,  the  public  is  to  assume  that  he  has  the  means  of  pro- 
tecting the  property  confided  to  his  care  by  the  nature  of  his 
business,  and  that  he  is  furnished  with  all  that  is  necessary  to 
enable  him  to  use  ordinary  diligence  in  the  charge  which  he  has 
invited.  The  appliances  necessary  to  the  diligence  must  have  a  rel- 
ative reference  to  the  community  in  which  he  lives.  The  safety 
of  the  article  confided  to  him  might  possibly  be  better  secured  by 
watchfulness  and  vigilance  than  by  bars  and  bolts.  It  is  a  com- 
mon practice  in  large  cities  for  banking  houses  to  employ  a  watch- 
man, and  yet  it  would  scarcely  be  contended  that  these  plaintiffs 
were  guilty  in  such  omission,  if  not  a  single  bank  in  the  place  in 
which  they  lived  thought  it  necessary  to  avail  itself  of  such  a  se- 
curity. ...  If  ordinary  negligence  is  to  be  inferred  from  the 
absence  of  the  appliances  which  the  mechanical  skill  of  the  age 
has  invented,  without  regard  to  the  place,  there  would  be  no 
discrimination  between  a  loss  by  a  bailee  through  theft  in  an 
extensive  city  or  a  secluded  village.  .  .  .  There  is  no  doubt 
that  ordinary  diligence  must  be  measured,  at  this  day,  by  a 
different  standard  from  that  which  would  have  been  applied 
twenty  years  ago,  but  looking  to  the  period  and  the  place  the 

1  Scott  V.  Crews,  2  S,  C.  522,  535. 
320 


HIS   DUTY   TO   CARE   FOR   THE   THING   PLEDGED.       [§§  413-415. 

jury  are  to  determine  if  it  was  properly  exercised  under  the  sur- 
rounding circumstances." 

413.  In  regard  to  the  burden  of  proof  of  negligence  on  the 
part  of  the  pledgee  in  the  care  of  the  property  when  suit  is 
brought  by  the  pledgor  to  charge  him  with  the  loss,  it  would 
seem  that  at  the  outset  the  pledgee  would  be  presumed  to  have 
acted  in  accordance  with  his  trust,  until  the  contrary  is  shown. 
The  law  will  not  presume  negligence.  But  when  the  pledgor 
has  proved  the  contract  of  pledge  and  the  delivery  of  the  goods 
to  the  pledgee,  the  burden  is  upon  the  latter  to  show  the  loss  of 
them  and  the  manner  of  the  loss  ;  for  with  him  rests  a  knowledge 
of  the  facts  and  circumstances  attending  the  loss.  "  If,  when 
these  facts  and  circumstances  are  thus  disclosed,  and  the  evidence 
bearing  upon  the  question  of  negligence  is  all  out,  the  scale  is 
evenly  balanced,  the  presumption  that  the  bailee  does  his  duty 
will  leave  the  case  with  him."  ^  Thus  where  one  has  pledged  to 
a  bank  a  negotiable  bond,  and  claims  damages  for  the  bank's 
failure  to  return  security,  after  the  latter  has  proved  the  loss  of 
it  through  larceny  by  persons  not  connected  with  the  bank,  the 
burden  of  proof  to  show  negligence  on  its  part  lies  with  the 
pledgor.^ 

414.  A  national  bank  in  taking  collateral  security  for  a 
loan  assumes  the  ordinary  liability  of  a  pledgee  for  the  care 
of  the  collaterals.  The  taking  of  stocks  and  bonds  as  collateral 
security  is  incident  to  conducting  a  general  banking  business,  and 
is  therefore  a  power  incident  to  banks  organized  under  the  Na- 
tional Banking  Act.  Such  a  bank  having  the  power  to  take  such 
collaterals  is  liable  as  an  ordinary  bailee,  for  failure  to  exercise 
proper  and  ordinary  care  to  prevent  their  loss.^ 

415.  A  bank  is  liable  for  a  fraudulent  conversion  by  its 
officers  of  collateral  securities  pledged  to  it  for  loans,  if  the 

1  Mills  V.  Gilbretb,  47  Me.  320,  326,  Nat.  Bank  of  Minneapolis,  1  N.  W. 
per  Rice,  J.;  and  see  Clark  u.  Spence,  Reporter,  173;  S.  C.  Thompson'a 
10  Watts  (Pa.),  335.  Nat.    Bank    Cases,  312;     Shoemaker 

2  Wiiillirop  Bank  v.  Jackson,  6  7  v.  Nat.  Mechanics'  Bank,  2  Abb. 
Me.  570,  572.  U.   S.  416;    .S'.    C.   Thompson's    Nat. 

8  Third  Nat.  Bank  of  Baltimore  v.     Bank  Cases,  169. 
Boyd,  44    Md.  47;    Canficld   v.   State 

21  321 


[§  415.    pledgee's  eights  and  liabilities  before  default. 

want  of  ordinary  care  and  vigilance  affords  the  opportunity  for 
such   conversion.      The  receiver  of   the  Bankers'  and  Brokers' 
Association  having  brought  an  action  to  recover  the  amount  of  a 
loan  made  by  the  association,  the  defendant  admitted  the  loan, 
but  showed  that  he  had  deposited  with  the  association,  as  col- 
lateral security,  certain  railroad  bonds  and  bank  stocks,  and  that 
he  had  tendered  the  amount  of  the  loan  and  demanded  a  return 
of  the  collaterals  before  the  commencement  of  the  action.     It 
appeared  that  the  president  of  the  association  had  taken  these 
collaterals,  pledged   them  for  his  own   debts,  and  subsequently 
absconded.     The  charter  of  the  association  committed  the  man- 
agement of  it  to  thirteen  trustees,  who  by  the  by-laws  were  re- 
quired to  hold  monthly  meetings.     Its  property  and  securities 
were  in  the  charge  of  a  manager,  who  was  one  of  the  trustees. 
For  several  months  prior  to    his  default    the  president  of  the 
association,  who  was  a  broker,  and  a  large  borrower  of  money, 
had  been  in  the  habit  of  sending  to  the  office  of  the  association, 
and,  against  the  objection  of  the  manager,  taking  away  and  using 
its  securities,  and  returning  such  of  them  as  from  time  to  time 
the  manager  sent  for.     The  defendant's  securities  were  taken  in 
this  way.     The  trustees  did  not  hold  meetings,  as  provided  for 
by  the  by-laws,  made  no  examinations  of  the  securities,  and  took 
no  substantial  oversight  of  the  affairs  of  the  association,  and  no 
measures  for  the  safe  custody  of  its  property.     It  was  held  that 
the  association  was  liable  for  the  securities,  and  that  the  defend- 
ant might  set  off    their   value   in    this   action.^     Chief  Justice 
Church,  delivering  the  judgment  of  the  Court  of  Appeal  of  New 
York  in  this  case,  after  referring  to  several  cases  cited  by  the 
plaintiff,  which  were  cases  of   special  deposit,  without  contract 
or  reward,^  said:  "  With  the  doctrine  of  these  cases  no  fault  can 
be  found.     If  a  loss  occurs,  even  through  the  larceny  of  agents 
or  employees,  the  depositary  is  not  liable,  unless  gross  negligence 

1  Cutting  I'.  Marlon,  6  Abb.  (N.  Y.)  See,  also,  similar  cases:  First  Na- 
N.  C.  388  ;  5.  C.  17  Hun,  5  73  ;  affirmed  tional  Bank  v.  Ocean  Nat.  Bank,  60 
by  Court  of  Appeals,  78  N.  Y.  454;  N.Y.  278;  Smith  v.  First  Nat.  Bank  of 
5.  C.  19  Am.  Law  Reg.  (N.S.)  176.  Westfield,   99    Mass.    605;    Wiley   v. 

2  These  cases  were:  Foster  v.  Es-  First  Nat.  Bank  of  Brattleboro,  47 
sex  Bank,  17  Mass.  479;  Giblin  i'.  Mc-  Vt.  546;  5.  C.  Thompson's  Nat.  Bank 
Mullen,  L.  R.  2  P.  C.  Cases,  31 7,  318  ;  Cases,  905,  and  note. 

Scott.  V.  Nat.  Bank  of  Chester  Valley, 
72  Pa.  St.  471. 

322 


HIS  DUTY    TO   CARE   FOR   THE   THING  PLEDGED.        [§  415. 

is  shown.     The  distinction  between  those  cases  and  this  is  mani- 
fest.   This  case  was  not  a  special  deposit.    The  corporation  occu- 
pied at  least  the  position  of  bailee  for  hire,  and  was  under  obliga- 
tion to  exercise  at  least  ordinary  care.     The  finding  that  such 
care   was   not   exercised   was   justified    by    the   evidence.     The 
president  was  a  notorious  dealer  and  speculator  in  stocks.     He 
had  been  engaged  for  many  months  in  abstracting  securities  held 
by  the  bank  for  his  private  purposes,  and  he  had  done  this  not 
secretly,   but  openly  and  publicly.     The  manager  was   also   a 
trustee,  knew  that  these  acts  were  being  done,  and  it  is  difficult 
to  see  why  his  knowledge  and  neglect  are  not  imputable  to  the 
corporation  itself.     If  all  the  trustees,  or  a  majority,  had  known 
of  these  transactions,  and  had  not  at  once  removed  the  president, 
or  otherwise  prevented  their  recurrence,  they  would  have  been 
guilty  of  culpable  dereliction  of  duty.     A  corporation  is  repre- 
sented by  its  trustees  and  managers.     Their  acts  are  its  acts,  and 
their  neglect  its   neglect.     The  employment  of  agents  of  good 
character  does  not  discharge  their  whole  duty.     It  is  misconduct 
not  to  do  this,  but,  in  addition,  they  are  required  to  exercise  such 
supervision  and  vigilance  as  a  discreet  person  would  exercise  over 
his   own  affairs.     The  bank   might  not  be  liable  for  a  single  act 
of  fraud  or  crime   on  the   part  of  an  officer   or  agent,  while   it 
would  be  for  a  continuous  course  of  fraudulent   practices,  espe- 
cially those  so  openly  committed  and  easily  detected  as  these  are 
shown  to  have  been.     Here  was  no  supervision,  no   meetings,  no 
examination,  no  inquiry.     There  was   actual  knowledge  on  the 
part  of  the  managing  trustee,  and  his  silence  and  inaction,  without 
adopting  any  measures  of  prevention,  amounted  to  acquiescence 
in  the  wrong,  and  it  would  not  be  a  strained  inference,  from  the 
business  of  the  president  and  the  publicity  of  the  acts,  and  other 
circumstances,  that  the  other  trustees  either  had  reason  to  suspect 
what  was  going  on,  or  if  not  that  they  were  grossly  negligent  of 
their  duties.     We  concur  with  the  learned  trial  judge,  '  that  a  sys- 
tem of  management  of  a  banking  house  in  which  such  conduct  of 
its  officers  was  permitted,  was  a  breach  of  duty,  and  grossly  negli- 
gent towards  its  dealers  and  persons  having  stocks  and  bonds  in 
its  keeping.'     It  is  argued  that  the  negligence  shown  was  not  the 
'proximate  cause  of  the  loss,  and  that  with  the  utmost  vigilance 
it  would  have  been  possible  for  the  president,  who  had  access  to 
the  vault,  to  have  abstracted  the  securities.     This  may  be  true, 

323 


§  416.]     pledgee's  rights  and  liabilities  before  default. 

but  the  position  is  not  tenable.  The  exercise  of  ordinary  care 
would  have  discovered  the  wrongful  practices,  because  they  were 
not  secret,  and  were  actually  known  to  the  nianagincr  trustee,  and 
if  known,  the  trustees  had  the  power,  and  it  would  have  been 
their  duty,  to  have  effectually  prevented  it,  and  the  presumption 
is  that  they  would  have  done  so.  The  negligence  related  to  the 
cause  of  the  loss,  viz.,  the  abstraction  of  collaterals  for  private 
use,  which  ordinary  vigilance  would  have  discovered  and  pre- 
vented." 

A  banking  company  managed  so  negligently  by  its  directors  or 
trustees  as  to  tempt  and  allow  an  officer  of  the  company  to  con- 
vert to  his  own  use  bonds  and  stocks  pledged  to  it  by  a  customer 
for  a  loan,  will  be  held  liable  to  the  customer  therefor.  Such  a 
company  is  bound  to  conduct  its  business  with  ordinary  circum- 
spection, and  so  that  securities  pledged  to  it  shall  be  reasonably 
protected  against  misapplication  by  its  servants  and  agents.^ 

416.  A  creditor  once  having  become  liable  for  collaterals 
received  on  deposit  continues  liable  for  them  even  after 
the  debt  has  been  paid,  if  the  contract  of  bailment  remains 
unchanged.  A  customer  of  the  third  National  Bank  of  Balti- 
more voluntarily  deposited  with  the  bank  a  large  amount  of 
bonds  as  security  for  his  existing  and  future  indebtedness  to  it. 
The  customer  kept  a  large  deposit  account  with  the  bank,  but 
sometimes  obtained  discounts  on  the  security  of  the  collaterals  ; 
and  sometimes,  when  he  wanted  money  for  a  very  short  time,  he 
obtained  call  loans  by  checks  on  the  security  of  these  collaterals. 
Sometimes  he  owed  the  bank  nothing,  but  left  the  bonds  with  it 
on  deposit.  The  bank  considered  the  account  a  desirable  one, 
and  the  arrangement  by  which  every  liability  was  secured  by 
these  collaterals  a  very  advantageous  one.  This  arrangement 
had  continued  several  years,  when  the  vault  and  safe  of  the  bank 
were  broken  into  by  burglars  and  robbed  of  a  large  amount  of 
money  and  securities.  The  burglars  obtained  entrance  through 
the  walls  of  an  adjoining  building,  and  through  the  walls  of  the 
vault  and  safe  by  the  use  of  appropriate  and  ingenious  tools. 
Among  the  valuables  stolen  were  money  belonging  to  the  bank, 
securities  belonging  to  the  family  of  the  president  of  it,  and  the 
bonds  deposited  as  collateral  security  by  the  customer  before 
1  Cutting  V.  Marlon,  6  Abb.  (N.  Y.)  N.  C.  388;  S.  C.  57  How.  Pr.  56. 

324 


HIS  dui;y  to  care  for  the  thing  pledged.      [§  417. 

spoken  of.  At  the  time  of  the  robbery  the  customer  was  not 
indebted  to  the  bank,  having  paid  his  last  debt  a  few  weeks  pre- 
viously. He  had,  however,  left  the  bonds  in  the  bank  under  the 
original  agreement,  as  collateral  security  for  any  indebtedness  he 
might  thereafter  incur  to  the  bank.  In  a  suit  by  the  customer 
to  recover  the  value  of  the  bonds,  upon  the  question  of  fact 
whether  there  had  been  any  want,  or  omission  of  ordinary  care 
and  diligence  on  the  part  of  the  bank,  from  which  the  loss  re- 
sulted, the  jury  found  against  the  bank.  The  Court  of  Appeals 
of  Maryland  ^  held,  as  matters  of  law,  that  the  original  contract 
of  bailment  was  valid  and  binding,  and  that  the  obligation  of 
the  bank  for  the  safe  custody  of  the  collaterals  did  not  cease 
when  the  plaintiff's  debt  had  been  paid ;  that  the  jury  were 
rightly  instructed  that  the  bank  was  responsible  for  the  bonds,  if 
they  were  stolen,  in  consequence  of  its  failure  to  exercise  such 
care  and  diligence  in  their  custody  or  keeping,  as,  at  the  time, 
banks  of  common  prudence,  in  like  situation  and  business,  usually 
bestowed  in  the  custody  and  keeping  of  similar  property,  and 
that  the  care  and  diligence  ought  to  have  been  such  as  was  prop- 
erly adapted  to  the  preservation  and  pi'otection  of  the  pi'operty, 
and  should  have  been  proportioned  to  the  consequence  likely  to 
arise  from  any  improvidence  on  its  part. 

417.  In  relation  to  the  measure  of  damages  there  has  been 
some  difference  of  opinion,  whether  the  value  of  the  securities 
should  be  taken  as  of  the  time  when  they  were  lost,  or  as  of  the 
time  when  a  demand  is  made  for  their  return.  Inasmuch  as  the 
value  of  collateral  securities  such  as  stocks  and  bonds  is  liable  to 
large  fluctuations,  the  time  fixed  for  ascertaining  it,  may  become 
of  much  importance,  and  has  been  the  subject  of  considerable  dis- 
cussion. The  rule  of  damages  in  actions  of  trover,  is  generally  ap- 
plied by  analogy  to  cases  of  the  loss  of  the  collateral  securities 
through  want  of  care  on  the  part  of  the  creditor ;  but  the  rule  of 
damages  in  trover  is  by  no  means  uniform  in  the  different  states. 

In  Maryland  the  courts,  following  the  rule  of  damages  prevail- 
ing in  that  state  in  actions  of  trover,  making  the  measure  of  dam- 
ages, the  value  of  the  property  at  the  time  of  conversion,  hold 
that  the  true  measure  of  damages  for  the  failure  of  a  creditor 
to  exercise  due  care  in  the  custody  of  bonds  deposited  with  him 

1  Tliird  Nat.  Bank  v.  Boyd,  44  Md.  47. 

325 


§  418.]     pledgee's  eights  and  liabilities  before  default. 


as  collateral  security  is  their  market  value  at  the  time  of  their 
loss.  The  legal  obligation  of  the  creditor  in  such  case  is  declared 
to  be  to  keep  the  bonds  safely,  and  to  return  them  when  the  debt 
secured  was  paid.i  "  Strictly  "  say  the  court,  "  this  obligation 
could  not  be  discharged  by  the  payment  of  their  value  in  money; 
after  the  bonds  had  been  lost,  and  it  had  become  impossible  to 
return  them,  there  was  no  necessity  for  a  demand,  and  when 
made,  it  could  have  no  significance  or  effect,  in  determining  the 
rights  of  the  parties.  These  had  become  fixed  when  the  breach 
occurred  by  the  loss  of  the  bonds,  and  in  our  judgment,  the 
proper  measure  of  damages  is  their  value  computed  at  that  time." 
According  to  other  authorities  if  securities  be  lost  through  the 
negligence  of  the  creditor,  the  rule  of  damages  is  their  value  at 
the  time  their  return  is  properly  demanded.^ 

III.  His  Right  to  Assign  the  Pledge. 

418.  The  pledgee  may  assign  his  interest  in  the  pledge  and 
the  assignee  will  stand  in  his  place.^     The  lien  of  a  pledge  can- 


1  Third  Nat.  Bank  v.  Boyd,  44  Md. 
47,  66.  The  case  of  Maury  v.  Coyle, 
34  Md.  235,  is  distinguished. 

2  Second  Nat.  Bank  of  Erie  v. 
Smith,  8  Phila.  (Pa.)  68  ;  S.  C.  B 
Brew.  9. 

8  So  by  statute  in  Georgia,  Code, 
1873,  §  2143;  Mores  v.  Conham,  Owen, 
123;  Johnson  v.  Stear,  15  C.  B.  (N. 
S.)  330;  Donald  v.  Suckling,  L.  R.  1 
Q.  B.  585,  618  ;  Ratcliff  v.  Davis,  Yel. 
178;  ,S.  C.  1  Bulst.  29;  Cro.  Jac. 
244;  Demainbray  ?).  Metcalfe,  2  Ver- 
non, 690;  Mann  v.  Shiffner,  2  East, 
523  ;  M'Combie  v.  Davies,  7  East,  6,7; 
Halliday  v.  Holgate,  L.  R.  3  Ex.  299; 
Warner  v.  Martin,  11  How.  209;  Jar- 
vis  I'.  Rogers,  15  Mass.  408;  Whitaker 
V.  Sumner,  20  Pick.  (Mass.)  399  ; 
Thompson  v.  Patrick,  4  Watts  (Pa.), 
414;  Ashton's  Appeal,  73  Pa.  St.  153; 
Bullard  v.  Billings,  2  Vt.  309;  Bush 
V.  Lyon,  9  Cow.  (N.  Y.)  52,  56  ;  Goss 
V.  Emerson,  23  N.  H.  38  ;  Bailey  v. 
Colby,  34  N.  H.  29,  35. 

Baltimore  Ins.  Co.  v.  Dalrymple,  25 
Md.  269;  Bulkeley  v.  Welch,  31  Conn. 
326 


339;  Calkins  v.  Lockwood,  17  Conn. 
154,  174  ;  Shelton  v.  French,  33  Conn. 
489;  Belden  v.  Perkins,  78  111.  449; 
Whitney  v.  Peay,  24  Ark.  22. 

"  There  is  a  great  difference  in  this 
respect  between  a  pledge  and  a  lien. 
The  authorities  are  clear  that  a  right 
of  lien,  properly  so  called,  is  a  mere 
personal  right  of  detention,  and  that 
an  unauthorized  transfer  of  the  thing 
does  not  transfer  that  personal  right. 
The  cases  which  established  in  Eng- 
land  before   the   factors'  act,  that   a 
pledge  by  a  factor  gave  his  pledgee  no 
right  to  retain  the  goods  even  to  the 
extent  to  which  the  factor  was  in  ad- 
vance, proceed  on  this  ground."    Note 
to  Hubbell  v.  Drexel,  21  Am.  Law  Reg. 
(N.  S.)  457,  citing  Daubigny  v.  Duval, 
5  T.  R.  604,  606,  where  Buller,  J.,  said 
that,  "a  lien  is  a  personal  right  and 
cannot   be    transferred    to    another," 
and  Legg  v.  Evans,  6  M.  &  W.  36,  42, 
where  Parke,  B.,  said:  "A  lien  is  a 
personal  right  which  cannot  be  parted 
with,  and   continues  only  so  long  as 
the  possessor  holds  the  goods;"  and 


HIS  RIGHT   TO    ASSIGN   THE   PLEDGE. 


[§  419. 


not  be  separated  either  from  the  possession  of  the  pledge,  or  from 
the  debt,  so  that  to  make  an  effectual  sale  both  must  pass  to  the 
assignee.!  Therefore  if  the  pledge  alone  be  assigned,  unless  it 
be  negotiable  paper  or  a  chose  in  action  having  the  legal  qualities 
of  such  paper,  payment  or  tender  may  be  made  to  the  original 
pledgee  who  retains  the  debt,  and  then  the  assignee  of  the  pledge 
is  liable  in  trover  for  the  pledge.^  As  the  security,  however,  is  a 
mere  incident  of  the  principal  debt,  just  as  a  mortgage  is  a  mere 
incident  of  the  debt  secured,^  an  assignment  of  the  debt  passes 
either  a  legal  or  equitable  interest  in  the  pledge,  unless  it  is  other- 
wise agreed  between  the  parties.* 


419.  The  pledge  is  not  a  distinct  and  independent  right  of 
property  which  is  capable  of  being  assigned  by  itself  aside 
from  the  debt.  The  pledgee  cannot  separate  his  special  property 
in  the  pledge  from  the  debt  secured  by  it,  so  that  the  debt  shall 
be  owned  by  one  person  and  the  pledge  by  another  ;  and  there- 
fore it  is  held  that  the  assignee  of  the  pledge  cannot  maintain  an 
action  to  enforce  the  lien,  unless  he  shows  that  he  also  owns  the 
debt  secured  by  the  pledge.^ 


McCombie  v.  Davies,  7  East,  6,  where 
Lord  Ellenborough  remarked,  that 
"  nothing  could  be  clearer  than  that 
liens  were  personal,  and  could  not 
be  transferred  to  third  persons  by 
any  tortious  pledge  of  the  principal's 
goods."     See  §331. 

1  Whitney  v.  Peay,  24  Ark.  22; 
Johnson  v.  Smith,  11  Humph.  (Tenn.) 
396;  Bullard  v.  Billings,  2  Vt.  309. 
See,  also,  Lewis  v.  Varnum,  12  Abb. 
(N.Y.),  Pr.  305. 

2  Ratcliflf  V.  Davis,  Yel.  178,  and 
see  Felt  v.  Keye,  23  How.  (N.  Y.) 
Pr.  359,  362;  per  Ingraham,  C.  J. 

8  Jones  on  Mortgages,  §§  813-822; 
Southerin  v.  Mendum,  5  N.  H,  420; 
Whittemore  v.  Gibbs,  24  N.  H.  484. 

*  Cole  V.  Bank  of  Montreal,  39  U. 
C.  Q.  B.  54,  74;  Esty  v.  Graham,  46 
N.  H.  169;  Stearns  v.  Bates,  46  Conn. 
306,  312;  Homer  v.  Savings  Bank,  7 
Conn.  478. 

See  to  the  contrary,  however,  John- 


son V.  Smith,  supra,  where  it  was  de- 
clared by  the  court  that  the  analogy 
between  a  mortgage  and  a  pledge  does 
not  hold  in  this  matter.  "  The  essen- 
tial distinction  is,  that  in  the  case  of 
a  mortgage,  the  right  passes  by  the 
conveyance,  and  possession  of  the 
property  is  not  essential  to  create  or 
support  the  title.  But,  in  the  case  of 
a  pledge,  the  right  is  created  and 
passes  only  by  delivery  or  possession 
of  the  property  pledged;  and  as  the 
lien  cannot  exist  in  favor  of  the 
pawnee,  without  possession  of  the 
pledge;  so  neither  can  it  pass  to  the 
assignee  of  the  debt,  without  being 
accompanied  by  the  pledge."  But 
would  not  the  original  pledgee  ordi- 
narily be  regarded  as  holding  posses- 
sion of  the  pledge  as  the  agent  of  his 
assignee  ? 

6  Van  Eman  y.Stanchfield,  13  Minn. 
75. 

327 


§  420.]    pledgee's  rights  and  liabilities  before  default. 

420.  The  original  contract  of  pledge  is  not  put  an  end 
to  by  repledging  the  thing  pledged,  and  therefore  the  original 
pledgor  cannot  recover  it  without  having  first  paid  or  tendered 
the  amount  of  his  debt  secured  by  the  pledge.  This  subject  was 
very  fully  and  learnedly  discussed  in  Donald  v.  Suckling  before 
the  court  of  Queen's  Bench.^  The  earlier  authorities  were  ex- 
amined in  detail  by  the  several  judges  delivering  separate  opin- 
ions and  a  distinction  recognized  between  a  pledge  and  a  lien,  as 
regards  the  powers  of  a  person  entitled  to  the  one  or  the  other 
security  ;  Mellor,  J.,  saying :  "  I  think  that  when  the  true  distinc- 
tion between  the  case  of  a  deposit,  by  way  of  pledge,  of  goods,  for 
securing  the  payment  of  money,  and  all  cases  of  lien  correctly  so 
described,  is  considered,  it  will  be  seen  that  in  the  former  there  is 
no  implication,  in  general,  of  a  contract  by  the  pledgee  to  retain 
the  personal  possession  of  the  goods  deposited ;  and  I  think  that, 
although  he  cannot  confer  upon  any  third  person  a  better  title  or 
a  greater  interest  than  he  possesses,  yet,  if  nevertheless  he  does 
pledge  the  goods  of  a  third  person  for  a  greater  interest  than  he 
possesses,  such  an  act  does  not  annihilate  the  contract  of  pledge 
between  himself  and  the  pawnor;  but  that  the  transaction  is 
simply  inoperative  as  against  the  original  pawnor,  who  upon 
tender  of  the  sum  secured  immediately  becomes  entitled  to  the 
possession  of  the  goods,  and  can  recover  in  an  action  for  any 
special  damage  which  he  may  have  sustained  by  reason  of  the 
act  of  the  pawnee  in  repledging  the  goods ;  and  I  think  that  such 
is  the  true  effect  of  Lord  Holt's  definition  of  a  '  vadium  or  pawn  ' 
in  Coggs  V.  Bernard  ;  ^  although  he  was  of  opinion  that  the  pawnee 
could  in  no  case  use  the  pledge  if  it  would  thereby  be  damaged, 
and  must  use  due  diligence  in  the  keeping  of  it,  and  says  that 
the  creditor  is  bound  to  restore  the  pledge  upon  payment  of  the 
debt,  because,  by  detaining  it  after  the  tender  of  the  money,  he 
is  a  wrongdoer,  his  special  pi-operty  being  determined;  yet  he 

1  L.  R.  Q.  B.  585,  610.     The  sub-  Cockburn,C.  J.,  Blackburn  and  Mellor, 

ject  of   pledge   in    this  case  was  de-  J.  J.  ;-Shee,  J.,  dissenting.     The  rul- 

bentures    of    a   joint-stock   company,  ing  of  the  majority  of  the  court  in  this 

These   having    been    repledged,    the  case  was  reaffirmed  b}'  the  unanimous 

pledgor   sought    to   recover   them    in  judgment  of  the  Exchequer  Cliamber 

detinue  with  damages  for  their  deten-  in   Halliday   v.  Holgate,  L.  R.  3  Ex. 

tion ;  but  having   made  no  tender  of  299. 

his  debt  secured  by  the  debentures,  it         ^2  Ld.  Raym.  909,  916. 
was  held  that  he  could  not  recover  by 

328 


HIS   RIGHT   TO   ASSIGN   THE   PLEDGE.  [§  420. 

nowhere  says  that  the  misuse  or  abuse  of  the  pledge  before  pay- 
ment or  tender  annihilates  the  contract  upon  which  the  deposit 
took  place.  If  the  true  distinction  between  cases  of  lien  and 
cases  of  deposit  by  way  of  pledge  be  kept  in  mind,  it  will,  I  think, 
suffice  to  determine  this  case  in  favor  of  the  defendant,  seeing 
that  no  tender  of  the  sum  secured  by  the  original  deposit  is 
alleged  to  have  been  made  by  the  defendant ;  and  considering 
the  nature  of  the  things  deposited,  I  think  that  the  plaintiff  can 
have  sustained  no  real  damage  by  the  repledging  of  them,  and  that 
he  cannot  successfully  claim  the  immediate  right  to  the  possession 
of  the  debentures  in  question." 

In  the  same  case  Chief  Justice  Cockburn  to  like  effect  said:  ^ 
"  The  question  here  is,  whether  the  transfer  of  the  pledge  is  not 
only  a  breach  of  the  contract  on  the  part  of  the  pawnee,  but 
operates  to  put  an  end  to  the  contract  altogether,  so  as  to  entitle 
the  pawnor  to  have  back  the  thing  pledged  without  payment  of 
the  debt.  I  am  of  opinion  that  the  transfer  of  the  pledge  does 
not  put  an  end  to  the  contract,  but  amounts  only  to  a  breach  of 
contract,  upon  which  the  owner  may  bring  an  action,  —  for 
nominal  damages  if  he  has  sustained  no  substantial  damages  ;  for 
substantial  damages,  if  the  thing  pledged  is  damaged  in  the  hands 
of  the  third  party,  or  the  owner  is  prejudiced  by  delay  in  not 
having  the  thing  delivered  to  him  on  tendering  the  amount  for 
which  it  was  pledged.  We  are  not  dealing  with  a  case  of  lien, 
which  is  merely  the  right  to  retain  possession  of  the  chattel,  and 
which  right  is  immediately  lost  on  the  possession  being  parted 
with,  unless  to  a  person  who  may  be  considered  as  the  agent  of 
the  party  having  the  lien  for  the  purpose  of  its  custody.  In  the 
contract  of  pledge,  the  pawnor  invests  the  pawnee  with  much 
more  than  the  mere  right  of  possession.  He  invests  him  with  a 
right  to  deal  with  the  thing  pledged  as  his  own,  if  the  debt  be 
not  paid  and  the  thing  redeemed  at  the  appointed  time.  It 
seems  to  me  that  the  contract  continues  in  force,  and  with  it  the 
special  property  created  by  it,  until  the  thing  pledged  is  redeemed 
or  sold  at  the  time  specified.  The  pawnor  cannot  treat  the  con- 
tract as  at  an  end  until  he  has  done  that  which  alone  enables 
him  to  divest  the  pawnee  of  the  inchoate  right  of  property  in  the 
thing  pledged,  which  the  contract  has  conferred  on  him." 
1  L.  R.  1  Q.  B.  585,  618. 

329 


§§  421, 422.]  pledgee's  rights  and  liabilities  before  default. 

421.  There  is  ordinarily  no  implication  in  law  that  the 
pledgee  shall  keep  the  pledge  in  his  own  exclusive  posses- 
sion.^  The  pledgor  might  stipulate  that  the  pledgee  should  not 
assign  the  pledge ;  and  the  fact  that  the  pledgor  places  a  special 
value  upon  the  article  pledged,  and  has  personal  confidence  in 
the  pledgee,  would  be  inducements  for  making  such  a  stipulation 
so  as  to  insure  the  safety  and  return  of  that  particular  article. 

It  has  been  suggested  that  an  obligation  on  the  part  of  the 
pledgee  to  keep  the  pledge  in  his  personal  care  may  in  some 
cases  be  inferred  from  the  nature  of  the  thing  pledged,  as  in  the 
case  of  a  valuable  work  of  art,  which  the  pawnor  may  be  per- 
fectly willing  to  intrust  to  the  custody  of  the  pawnee,  but  would 
not  have  parted  with  on  the  terms  that  it  should  be  passed  on  to 
others,  and  committed  to  the  custody  of  strangers.^ 

But  ordinarily  all  that  the  pledgor  can  require  is  that  the 
property  shall  be  returned  to  him  in  good  condition  upon  the 
payment  of  the  debt  secured  to  the  holder  of  the  pledge,  whether 
the  holder  be  the  pledgee  or  any  one  who  has  acquired  his 
interests. 

422.  A  pledgor  cannot  therefore  upon  an  assignment  of 
the  pledge  by  the  pledgee  with  the  debt  secured,  maintain 
an  action  of  trover  against  him  as  for  a  conversion  of  the 
property,  though  his  assignee  may  have  converted  the  pledge  to 
his  own  use  ;  ^  nor  can  the  pledgor  maintain  replevin  or  detinue 
for  the  thing  pledged  in  the  hands  of  the  pledgee's  assignee  with- 
out paying  or  tendering  the  debt  secured  by  the  pledge.^     Such 

1  Edwards  on  Bailm.  §  267;  Cooley  N.  S.  330;  Evans  v.  Potter,  2  Gall.  13; 

on   Torts,  453;   Donald   v.  Suckling,  Lewis  i'.  Mott,  supra ;  Lane  y.  Bailey, 

L.  R.  1  Q.  B.  585,  618  ;  Talty  v.  Freed-  47  Barb.  (N.  Y.)  395. 

man's  Saving  &   Trust   Co.  93  U.  S.  There  are  some  cases  not  in  accord 

321;  Hopper  v.   Smith,  63  How.  (N.  with  this  general  rule.    Thus  in  Neiler 

Y.)  Pr.  34 ;  Le^is  v.  Mott,  36  N.  Y.  v.  Kelley,  69  Pa.  St.  403,  and  Work 

395.  V.  Bennett,  70  Pa.  St.  484,  trover  was 

*  Per  Cockburn,  C.  J.,  in  Donald  maintained  for  an  illegal  conversion  of 
V.  Suckling,  supra.  the    thing  pledged    by  selling  or  re- 

'  Goss   V.  Emerson,   23    N.  H.  38;  pledging  it,  though  the  defendant  was 

Bailey  v.  Colby,  34  N.  H.  29  ;  Steiger  allowed  to  recoup  from  the  damages 

V.  Third    Nat.    Bank,    6    Fed.    Rep.  for   the   conversion    the   amount   due 

569.  him    secured   by   the   pledge.     These 

*  Halliday  v.  Holgate,  L.  R.  3  Ex.  cases  do  not,  however,  seem  to  be 
299;    Johnson    v.    Stear,    15    C.    B.  consistent  with  the  earlier  case,  in  the 

330 


HIS  RIGHT   TO   ASSIGN   THE   PLEDGE.  [§  423. 

an  action  assumes  an  immediate  right  of  possession  in  the  pledgor  ; 
but  he  has  no  such  right  without  first  paying  off  the  debt.  "  It 
is  a  contradiction  in  fact,  and  would  be  to  call  a  thing  that  which 
it  is  not,  to  say  that  a  pledgee  consents,  by  his  act,  to  revest  in 
the  pledgor  the  immediate  interest  or  right  in  the  pledge,  which, 
by  the  bargain,  is  out  of  the  pledgor  and  in  the  pledgee."  ^ 

A  pledgee  may  sell  or  assign  the  thing  pledged,  and  the 
pledgor  cannot  recover  the  property  of  the  purchaser  without 
paying  or  tendering  him  the  sum  due  thereon.^  The  pledgee 
may  also  transfer  his  interest  in  the  pledged  property  condi- 
tionally by  way  of  a  mortgage  or  pledge  to  another,  and  the 
transferree  will  hold  the  pledge  in  the  same  right  as  the  original 
pledgee,  until  the  debt  of  the  original  pledgor  is  paid.^ 

If  in  any  case  the  pledgor  is  entitled  to  an  action  against  the 
pledgee  making  a  sale  or  repledge,  that  is  wholly  inconsistent  with 
the  contract  of  pledge,  his  proper  remedy  is  not  an  action  of  det- 
inue or  conversion,  but  an  action  upon  the  case  for  the  injury 
done  to  his  legal  right.*  "  If  the  pledgee  deals  with  the  pledge 
in  a  manner  other  than  is  allowed  by  law  for  the  payment 
of  his  debt,  then  in  so  far  as  by  disposing  of  the  reversionary  in- 
terest of  the  pledgor,  he  causes  to  the  pledgor  any  difficulty  in 
obtaining  possession  of  the  pledge  on  payment  of  the  sum  due, 
and  thereby  does  him  any  real  damage,  he  commits  a  legal  wrong 
against  the  pledgor."  ^ 

423.  But  the  pledgee  can  ordinarily  assign  no  greater 
right  than  he  himself  possesses.    This  is  always  the  case  when 

same  state,  of  Thompson  v.  Patrick,  4  Trust  Co.  93  U.  S.  321  ;  Thompson  v. 

Watts,  414.  Patrick,  supra;  Bradley  v.  Parks,  83 

Trover  was  also  sustained  in  Mer-  111.  169  ;   Belden   v.  Perkins,   78  111. 

chants'   National  Bank  v.  Trenholm,  449;    Steiger  v.  Third  Nat.  Bank,  6 

12  Heisk.  (Tenn.)  520.    In  First  Nat.  Fed.  Rep.  569. 

Bank    v.   Boyce,    78    Ky.  42;    S.   C.  ^  IM'Combie  v.  Davies,   7  East,  6; 

19  Am.  Law    Reg.  (N.  S.)   503,  the  Ratcliffe  v.  Davis,  1  Bulst.  29;   S.  C. 

pledgor  was  allowed   to  maintain   an  Yel.  178  ;  Jarvis  v.  Rogers,  15  Mass. 

action  against  a  sub-pledgee  without  389  ;    National    Bank   v.   Winston,   5 

first  tendering  or  paying  the  original  Baxt.  (Tenn.)  685  ;  Lewis  o.  Mott,  36 

debt;  but  the  sub-pledgee  was  allowed  N.  Y.  395. 

a  right  of  set-off  against  the  original  *  Donald  »'.  Suckling,  L.  R.  1  Q.  B. 

pledgor.  585,  618,  per  Blackburn,  J. 

1  Per  Willes,  J.,  in  Holliday  v.  ^  Ilalliday  v.  Ilolgate,  L.  R.  3  Ex. 
Holgate,  L.  R.  3  Ex.  299,  302.  299,  per  Willes,  J. 

2  Talty    V.    Freeman's    Savings    & 

831 


§§  424,  425.]     pledgee's  rights  and  liabilities  before  default. 

the  pledge  is  a  chattel  which  has  been  pledged  in  the  usual  way 
by  delivery  without  a  formal  conveyance  of  the  legal  title.  The 
rule  is  otherwise,  however,  when  the  thing  pledged  is  a  chose  in 
action  like  a  certificate  of  stock  which  is  pledged  by  a  transfer 
of  the  legal  title ;  the  rule  generally  prevailing  being  that  a  pur- 
chaser from  the  pledgee,  or  his  sub-pledgee,  may  acquire  a  better 
title  to  such  property  than  the  original  pledgee  had,  so  that  the 
pledgor  is  precluded  from  redeeming  upon  paying  the  amount  of 
his  debt  secured  by  the  pledge.  This  is  upon  the  ground  that 
the  pledgor  has  intrusted  to  his  pledgee  not  merely  the  posses- 
sion of  the  property,  but  also  the  complete  title  thereto,  and  that 
the  pledgor  is  thereby  estopped  to  say  that  such  pledgee  is  not 
the  owner,  and  has  not  the  power  to  transfer  a  complete  and 
unconditional   title  to  any  one  else.^ 

If  the  pledge  be  stock  in  a  corporation,  the  pledgee's  assignee 
can  claim  as  against  the  corporation  no  greater  interest  in  the 
stock  than  the  owner  had  at  the  time  of  the  assignment.  Thus 
if  the  stock  is  only  partly  paid  up,  and  the  corporation  holds  the 
owner's  note  for  the  residue  payable  on  call,  such  pledgee  can 
only  claim,  as  against  the  owner,  the  proportion  of  the  stock  paid 
up  at  the  time  he  received  the  certificate,  though  the  owner  may 
have  afterwards  completed  the  payment.^ 

424.  Of  course  a  pledgee  of  negotiable  paper  can  always, 
until  its  maturity,  give  a  good  title  to  it,  discharged  of 
the  equities  of  the  pledgor .^  If  the  pledge  be  non-negotiable 
paper  it  is  subject  to  the  same  defences  in  the  hands  of  the 
assignee  that  it  was  in  the  hands  of  the  pledgee.*  A  reservation 
in  a  bond  or  note  of  the  right  to  pay  the  same  at  any  time  before 
maturity,  by  taking  from  it  the  element  of  certainty  as  to  time 
of  payment,  which  is  one  of  the  essentials  of  negotiability,  makes 
the  paper  non-negotiable.^ 

425.  A  payee  of  a  negotiable  note  holding  other  notes 
as  collateral  security,  may  lawfully  transfer  the  collateral 
notes  to  an  indorsee  of  the  principal  note,^  although  he  has 

1  Luckett  V.  Townsend,  3  Tex.  119.         *  Chouteau  v.  Allen,  70  Mo.  290. 

2  Cherry  v.  Frost,  7  Lea  (Tenn.),l.         6  Chouteau  v.  Allen,  supra;   Way 
8  See  §  94;  Coit  v.  Humbert,  5  Cal.     v.  Smith,  111  Mass.  523;  Hubbard  v. 

260.  Mosely,  11  Gray  (Mass.),  170. 

332  6  Chapman  v.  Brooks,  31  N.  Y.  75. 


HIS   RIGHT   TO  ASSIGN   THE   PLEDGE.  [§§  426,  427. 

given  liis  debtor  a  written  undertaking  to  redeem  the  collaterals  ; 
and  if  the  indorsee  to  whom  the  securities  are  transferred, 
wrongfully  converts  them  to  his  own  use,  the  original  payee  is 
not  liable  in  trover  for  such  conversion. ^  The  assignee  of  the 
principal  debt  and  the  collateral  securities  holds  the  latter  upon 
the  same  terms  that  the  original  pledgee  held  them.^  So  long 
as  nothing  is  done  to  deprive  the  pledgor  of  his  right  to  redeem, 
on  payment  of  the  amount  due  on  the  principal  debt,  he  is  not 
injured,  and  cannot  complain  of  the  assignment.^ 

426.  A  pledgee  may  release  a  portion  of  the  goods 
pledged,  and  such  release,  if  made  to  the  pledgor,  or,  with  his 
consent,  to  his  assignee,  does  not  affect  the  pledgee's  lien  upon 
the  remainder  of  the  property,  or  his  right  of  action  against  his 
debtor  upon  the  personal  obligation.  Moreover,  the  pledgee 
may  release  a  portion  of  the  property  pledged  to  the  pledgor's 
assignee  upon  receiving  from  him  a  proportionate  part  of  the 
debt  secured,  without  affecting  the  pledgee's  rights  against  the 
pledgor. 

A  firm  having  pledged  several  cases  of  goods  for  a  debt,  dis- 
solved the  partnership,  and  convej'ed  to  a  third  person  all  the 
partnership  property,  in  consideration  that  he  would  pay  the 
partnership  debts.  The  purchaser  paid  a  portion  of  the  debts 
to  the  pledgee,  and  received  what  was  supposed  to  be  a  propor- 
tionate part  of  the  goods,  though,  in  fact,  this  part  of  the  goods 
was  the  much  more  valuable  portion.  Upon  the  insolvency  of 
the  purchaser  the  pledgee  made  demand  upon  the  pledgors  for 
the  balance  of  the  debt,  and  caused  the  rest  of  the  goods  to  be 
sold,  and  himself  purchased  them.  It  was  held  that  his  release 
of  a  portion  of  the  goods  was  not  such  a  dealing  with,  or  dis- 
position of  his  collateral  security,  as  to  make  him  liable  to  ac- 
count with  the  pledgors  for  any  greater  sum  than  that  he  received 
from  their  assignee.* 

427.  Upon  the  death  of  the  pledgee  his  right  to  hold 
the  pledge  passes  to  his  personal  representative,  who  nuiy 

1  Goss  V.  Emerson,  23  N.  li.  38.  Burke,   22  Gratt.  (Va.)   254;  Fant  v. 

2  Ponce  V.    McElvy,  47    Cal.    154;     Miller,  17  lb.  187. 

Dupre  V.   Fall,  10  Cal.  430;    Loud  v.         «  Chapman  v.  Brooks,  31  N.  Y.  75. 

*  Faulkner  v.  Hill,  104  Mass.  188. 

333 


§  428.]     pledgee's  rights  and  liabilities  before  default. 

hold  and  enforce  the  pledge  in  the  same  manner,  and  to  the  same 
extent,  as  the  creditor  himself  might  if  he  were  living.^ 

428.  In  several  states  it  is  made  a  criminal  offence  to  sell 
or  repledge  collateral  securities,  without  the  consent  of  the 
pledgor.  Thus,  in  Massachusetts  ^  it  is  enacted  that  whoever, 
holding  any  collateral  security  deposited  with  him  for  the  pay- 
ment of  a  debt  which  may  be  due  to  him,  sells,  pledges,  lends, 
or  in  any  way  disposes  of  the  same  before  such  debt  becomes  due 
and  payable,  without  the  authority  of  the  party  depositing  the 
same,  shall  be  punished  by  fine  not  exceeding  five  hundred  dol- 
lars, or  imprisonment  in  the  state  prison  or  jail  not  exceeding  two 
years.3  Whoever  with  intent  to  defraud,  buys,  receives,  or  aids 
in  the  concealment  of  personal  property,  knowing  the  same  to  be 
hired,  leased  or  held  as  collateral  security,  shall  be  punished  by 
fine  not  exceeding  one  hundred  dollars,  or  imprisonment  in  the 
jail  not  exceeding  one  year. 

In  Pennsylvania  ■*  it  is  provided  that  it  shall  not  be  lawful  for 
any  person  or  persons,  bank,  savings  fund,  building  association, 
or  any  corporation,  to  repledge  or  re-hypothecate  any  stocks, 
bonds,  or  other  securities,  received  by  any  of  them  for  money 
lent  and  borrowed,  during  the  continuance  of  the  contract  of  hy- 
pothecation or  pledging  of  such  securities  ;  and  such  repledging 
or  re-hypothecation,  without  the  consent  of  the  party  pledging 
the  same,  is  hereby  declared  a  misdemeanor,  triable  in  the  courts 
of  quarter  sessions,  and  on  conviction  thereof,  any  person  or  per- 
sons, or  the  officers  of  any  corporation,  violating  the  provisions 
of  this  act,  shall  be  sentenced  to  a  fine  not  less  than  five  hun- 
dred nor  more  than  five  thousand  dollars,  and  undergo  imprison- 
ment for  a  period  not  exceeding  five  years,  or  both,  or  either,  at 
the  discretion  of  the  court  before  which  such  person  shall  be 
prosecuted. 

1  Henry  v.  Eddy,  34  111.  508.  eral  security  taken  to  indemnify  him  as 

2  Pub.  Stats.  1882,  c.  203,  §§  72,  73,  indorser  of  a  note,  after  the  note  has 
8  The  offence  of  disposing  of  col-  been  paid  bv  the  maker,  may  be  in- 
lateral  security  before  the  debt  is  due,  dieted  for  embezzlement.     Common- 
is   not   indictable    as    embezzlement  ;  wealth  v.  Butterick,  supra. 

but  only  under  this  statute.    Common-         *  Laws  1878,  p.  155,  No.  200.     Act 
wealth  y.  Butterick,  100  Mass.  1.    But     of  May  25th,  1878. 
one  fraudulently  disposing  of   coUat- 

334 


HIS   RIGHT   OF  ACTION   FOR   A   CONVERSION.     [§§  429,  430. 

In  1881  1  this  statute  was  modified  by  a  proviso  that  it  should 
not  be  construed  to  prevent  brokers  from  pledging  or  hypothe- 
cating stock  or  other  securities  which  they  have  purchased,  in 
whole  or  in  part,  with  their  own  money  or  credit  for  others,  and 
for  which  they  have  not  been  wholly  reimbursed  by  the  parties 
for  whom  such  stocks  or  other  securities  have  been  purchased. 

IV.  His  Right  of  Action  for  a  Conversion  of  the  Pledge. 

429.  A  pledgee  from  whom  a  pledged  chattel  has  been 
wrongfully  taken  may  recover  it  by  replevin,^  or  may  recover 
its  value  from  the  person  who  has  converted  it.  ^  His  right  of 
possession  of  the  chattel  enables  him  to  maintain  the  former  ac- 
tion ;  and  his  special  property  in  it,  the  latter.  The  pledgee  can 
recover  the  property  or  damages  not  only  from  the  wrongful 
taker  but  from  any  one  to  whom  such  wrongful  taker  has  deliv- 
ered it.  Thus,  if  the  pledge  has  been  stolen  from  the  pledgee, 
and  delivered  to  an  express  company,  such  company  is  liable 
for  the  value  of  the  property  after  a  demand  for  it  by  the 
pledgee.^ 

430.  The  pledgee  is  entitled  to  the  exclusive  possession 
of  the  pledge,  and  may  recover  it  or  its  value  from  the 
pledgor,  if  he  wrongfully  repossesses  himself  of  it. 

If  a  pledgee  has  consented  to  a  sale  of  the  property  by  the 
person  in  possession  of  it,  his  right  of  action  is  for  the  proceeds 
of  such  sale,  and  not  for  the  property  itself  or  its  value.  His 
remedy  is  by  an  action  for  money  had  and  received,  and  not  by 
trover.^ 

But  if  a  pledgee  deliver  possession  of  the  pledged  goods  to  one 
who  promises  to  pay  his  claim  out  of  the  proceeds  of  the  goods 
when  sold,  and  the  latter  transfers  the  goods  to  a  commission 
merchant  who  advances  him  more  than  the  amount  subsequently 
realized  from  their  sale,  the  pledgee  cannot  claim  any  part  of 
the  proceeds  from  the  commission  merchant,  because  the  latter 

1  Act  of  June  10th,  1881  ;  P.  L.  8  United  States  Express  Co.  i'. 
1881,  107.  Meints,  72  111.  293. 

2  Noles  V.  Marable,  50  Ala.  366;  *  United  States  Express  Co.  v. 
Woodruff  V.  Halsey,  8  Pick.  (Mass.)  Meints,  supra. 

333  ;   Brownell  v.  Hawkins,  4   Barb.         ^  Taylor  v.  Turner,  87  111.  29G. 
N.  Y.  491  ;  Jones  on  Chattel  Mort- 
gages, §  447  a. 

335 


§§  431-433.]   pledgee's  rights  and  liabilities  before  default. 

did  not  take  the  goods  subject  to  the  pledgee's  lien,  or  subject  to 
the  first  taker's  promise. ^ 

431.  A  bill  in  equity  will  not  lie  by  a  pledgee  against  one 
intrusted  with  property  for  the  purpose  of  selling  it,  upon  his 
refusal  to  pay  over  the  proceeds  to  the  pledgee ;  for  there  is  a 
complete  remedy  by  an  action  at  law  for  money  had  and  received.^ 

432.  The  measure  of  damages  in  an  action  against  the 
pledgor  or  one  acting  under  his  authority  for  a  conversion  of 
the  pledge  is  in  like  manner  the  value  of  the  pledge  with  interest 
from  the  time  of  conversion,  unless  such  amount  exceeds  the  sum 
due  from  him  to  the  pledgee,  in  which  case  that  sum  is  the  proper 
measure  of  damages.^ 

433.  In  an  action  by  a  pledgee  of  goods  against  a  third 
party  for  their  conversion,  the  measure  of  damages  is  the  full 
value  of  the  goods.*     This  rule  is  founded  on  the  consideration 


^  Black  V.  Bogert,  65  N.  Y.  601. 

2  Taylor  v.  Turner,  87  111.  296,  302. 
The  Court  saj  :  "  If  by  the  allegation 
that  the  property  was  received  upon  a 
trust,  the  case  may  be  brought  within 
the  jurisdiction  of  a  court  of  chancery, 
we  do  not  see  why  it  might  not  be  the 
same  in  every  case  of  the  bailment  of 
personal  property.  And  we  do  not 
see  why,  in  like  manner,  all  that  large 
class  of  cases  where  the  action  for 
money  had  and  received  for  anoth- 
er's use  is  maintained,  might  not  be 
drawn  within  the  jurisdiction  of  a 
court  of  equity  by  making  the  allega- 
tion of  the  receipt  of  the  money  in 
trust  to  pay  the  same  over  to  another. 

Trusts,  though  in  general  of  a  pecul- 
iar and  exclusive  jurisdiction  in  equity, 
are  sometimes  cognizable  at  law,  as  in 
the  cases  above  mentioned  and  the  one 
now  before  us;  and  when  so  cognizable 
and  the  remedy  at  law  is  adequate  and 
complete  as  we  regard  it  here,  we 
think  such  remedy  should  be  pursued, 
and  that  it  should  not  be  left  with  a 

336 


plaintiff  at  his  will  by  the  selection  of 
the  forum,  to  deprive  the  defendant 
of  the  so  much  prized  privilege  of  trial 
by  jury  which  exists  at  law." 

In  Coleman  v.  Shelton,  2  M'Cord 
(S.  C.)  Ch.  126,  a  bill  in  equity  to  en- 
able a  pledgee  to  enforce  his  lien  upon 
property,  which  the  pledgor  had  taken 
from  him,  was  sustained.  The  prayer 
of  the  bill  was  that  the  pledgor  be 
restrained  from  disposing  of  the  prop- 
erty, and  that  it  be  sold  for  the  pay- 
ment of  the  debt  secured. 

But  the  pledgee  could  recover  the 
property  by  replevin;  and  this  legal 
remedy  being  adequate,  there  would 
seem  to  be  no  occasion,  or  i-ight  even, 
to  go  into  chancery  for  a  remedy. 

^  Hurst  V.  Coley  (C.  C.  Dist.  Ga. 
1882),  15  Fed.  Rep.  645;  Hays  v. 
Riddle,  1  Sandf.  (N.  Y.)  248. 

4  Adams  v.  O'Connor,  100  Mass. 
515;  U 11  man  i'.  Barnard,  7  Gray 
(Mass.),  554;  Pomeroy  v.  Smith,  17 
Pick.  (Mass.)  85  ;  Baldwin  r.  Bradley, 
69  111.  32;  Benjamin  v.  Stremple,  13 


HIS   RIGHT   OF   ACTION   FOR   A   CONVERSION.  [§-134. 

that  for  all  beyond  the  debt  for  which  the  goods  are  pledged,  the 
pledgee  is  responsible  to  the  pledgor.^  Thus  if  the  goods  held 
in  pledge  be  seized  and  sold  on  execution  by  a  creditor  of  the 
pledgor,  without  statutory  authority,  the  measure  of  damages  in 
a  suit  by  the  pledgee  against  the  officer  is  the  value  of  the  prop- 
erty and  not  the  amount  of  his  demand  secured  by  the  pledge.^ 
In  such  case  the  officer  is  a  trespasser,  and  must  be  regarded  as  a 
stranger  and  therefore  liable  for  the  full  value  of  tlie  goods.  But 
on  the  other  hand  if  the  officer  seize  the  goods  in  a  lawful  manner 
he  is  to  be  regarded  as  acting  in  privity  with  the  pledgor ;  and 
in  that  case  the  pledgee  would  not  be  answerable  over  for  the 
surplus  above  the  debt  due  to  himself,  and  the  officer  would  be 
answerable  to  the  pledgee  for  only  the  value  of  his  special  inter- 
est in  the  goods.  The  solution  of  the  question  whether  the 
officer  is  answerable  to  the  pledgee  for  the  full  value  of  the  goods 
or  only  for  the  value  of  his  interest  as  pledgee  depends  upon  the 
question  whether  the  officer  is  pursuing  a  proper  and  legal  course 
in  seizing  the  goods.  If  the  pledgor  has  an  interest  which  is 
subject  to  execution,  and  the  officer  properly  levies  upon  this,  he 
is  deemed  to  be  acting  in  privity  with  the  pledgor,  and  is  liable 
to  the  pledgee  only  for  the  value  of  his  special  interest.  On  the 
contrar}^  if  the  pledgor  has  no  interest  that  is  subject  to  execu- 
tion, or  if  the  officer  proceeds  in  an  unlawful  manner  in  seizing 
the  goods,  he  becomes  a  trespasser,  and  is  to  be  treated  as  a 
stranger,  liable  for  the  full  value  of  the  property.^ 

434.  For  an  injury  done  by  a  stranger  to  the  thing  pledged, 
or  for  a  conversion  of  it  by  him,  an  action  may  be  maintained 
either  by  the  pledgor  or  by  the  pledgee.  The  former  may  main- 
tain either  an  action  of  trespass  or  an  action  of  trover  by  virtue 
of  his  general  ownership  of  the  property,  and  the  latter  may 
maintain  either  action  by  virtue  of  his  special  property  in  it  and 
of  his  actual  possession  of  it.*  Moreover  either  party  is  entitled 
to  recover  of  a  stranger  the  full  value  of  the  pledge ;  though 

111.  4G6;  Treadwell  v.  Davis,  34  Cal.  ^  Soule     v.   White,    14    Me.   436; 

601,  606;  United  States  Express  Co.  Treadwell  v.  Davis,  supra. 

V.  Meints,  72  111.  293  ;  Swire  v.  Leach,  ^  Treadwell  v.  Davis,  xuprn,  follow- 

18  C.  B.  (N.  S.)  479.  ing  in  part  the  lanj:!uage  of  Crockett,  J. 

1  Lyle  y.  Barker,  SBinn.  (Pa.)457;  *  Jones     on     Chattel     Mortgages, 

Treadwell  v.  Davis,  supra.  §  447a. 


22 


337 


§§  435,  436.]   pledgee's  rights  and  liabilities  before  default. 

when  the  pledgee  makes  such  recovery  he  will  hold  the  surplus 
above  the  amount  required  for  the  payment  of  the  debt  secured 
in  trust  for  the  general  owner.  But  a  judgment  recovered  by 
either  the  pledgor  or  pledgee  is  a  bar  to  a  suit  by  the  other  for 
the  same  cause  of  action :  ^  and  it  would  seem  that  a  voluntary 
payment  of  damages  to  one  would  be  a  bar  to  a  suit  by  the 
other. 

435.  In  an  action  for  money  had  and  received  by  a  pledgee 
of  gold  coin  to  recover  it,  the  damages  must  be  limited  to  the 
amount  of  money  with  interest,  and  cannot  be  increased  by  re- 
garding the  coin  as  merchandise ;  for  this  action  would  not  lie  at 
all  if  the  coin  be  regarded  as  merchandise ;  and  being  for  the 
recovery  of  money  the  coin  must  be  treated  as  money .^  In  an 
action  of  trover  it  would  seem  that  the  measure  of  damages  should 
be  the  value  of  the  gold  at  the  time  of  the  conversion  ;  ^  yet  in  a 
Wisconsin  case  it  was  held  that  the  judgment  was  limited  to  the 
number  of  dollars  represented  by  the  gold  coin  deposited  as  col- 
lateral, and  that  this  judgment  might  be  discharged  in  treasury 
notes.* 

436.  If  the  pledgor  take  the  property  pledged  from  the 
pledgee  by  replevin  before  the  debt  is  satisfied,  the  latter 
under  the  laws  of  Missouri  is  entitled  upon  judgment  in  his  favor 
to  damages  to  the  extent  of  his  interest  in  it  instead  of  taking 
back  the  property.  The  judgment  in  such  case  should  be  for  the 
value  of  his  interest  and  not  for  the  total  value  of  the  property, 
because  this  course  settles  the  rights  of  the  parties  and  leaves 
nothing  open  for  further  litigation  between  them.^  But  if  judg- 
ment is  entered  for  the  full  value  of  the  property ;  and  this 
exceeds  the  amount  of  the  debt  secured,  the  pledgee  will  hold 
the  remainder  of  the  money  received,  after  satisfying  his  claim 
to  the  use  of  the  pledgor.  Such  judgment  for  the  full  value  of 
the  property  does  not  determine  the  question  of  title  to  the  prop- 
erty, but  only  the  question  of  possession.     The  pledgee  holds  the 

1  Green  v.  Clarke,  12  N.  Y.  343;  «  Warner  v.  Sauk  County  Bank, 
Chesley  r.  St.  Clair,  1  N.  H.  189.  20  Wis.  492. 

2  Frotbingham  v.  Morse,  45  N.  H.  ^  Miles  v.  Walther,  3  Mo.  App.  96; 
545.  Dilwortli  v.  McKelvy,  30  Mo.  149. 

8  Per  Bellows,  J.,  in  Frothingham 
V.  Morse,  supra. 

338 


HIS   RIGHT   OF   ACTION  FOR  A  CONVERSION.  [§  436. 

money  recovered  by  such  judgment  in  place  of  the  specific  thing 
pledged.  He  has  no  better  title  to  the  money  than  he  had  to 
the  thing  pledged  before  that  was  wrongfully  taken  from  him. 
He  cannot  receive  and  retain  the  total  value  of  the  collateral  to 
his  own  use.i 

1  Miles  V.  Walther,  3  Mo,  App.  96. 

339 


CHAPTER  XII. 


HTGHTS   AKD   LIABILITIES   OF  A   PLEDGEE   OF   STOCK. 


I.  His  rights  and  liabilities  as  a  stock- 
holder, 437-460. 

II.  His  rights  acquired  in  good  faith  from 
the  apparent  owner,  461-473. 

in.  His  rights  when  dealing  with  one  hold- 
ing a  fiduciar}'  relation,  474-494. 


IV.  His  rights  as    broker   carrying  stock 

upon  margin,  495-500. 
V.  His  right  to  use  and  hypothecate  pledged 

stock,  5C1-512. 


I.  His  Rights  and  Liabilities  as  a  Stockholder. 

437.  The  liability  one  incurs  as  a  stockholder,  by  taking 
shares  as  collateral  security,  is  often  a  matter  of  importance. 
In  general,  it  may  be  said  that  one  to  whom  a  certificate  of  stock 
has  been  issued  absolutely,  but  in  fact  as  collateral  security, 
assumes  the  liabilities  of  a  stockholder  so  far  as  concerns  the 
creditors  of  the  corporation,  and  must  bear  all  the  burdens  that 
relation  imposes.  Having  voluntarily  assumed  the  relation  of 
stockholder,  it  makes  no  difference  that  he  has  done  so  with  a 
view  to  assist  the  corporation  itself  by  a  loan  of  money  or  credit.^ 
The  legal  title  to  the  stock  being  in  him  by  his  own  procurement, 
a  creditor  of  the  corporation  is  not  bound  to  seek  out  the  equi- 
table owner,  and  enforce  the  stockholder's  liability  against  him. 


1  National  Bank  v.  Case,  99  U.  S. 
628;  Pullman  v.  Upton,  96  lb.  328; 
Empire  City  Bank,  in  7-e,  18  N.  Y. 
199;  Holyoke  Bank  v.  Burnham,  11 
Cush.  (Mass.)  183;  Crease  v.  Bab- 
cock,  10  Met.  (Mass.)  525,  545; 
Magruder  v.  Colston,  44  Md.  349; 
Hale  V.  Walker,  31  Iowa,  344; 
Thompson's  Liability  of  Stockhold- 
ers, c.  13.  See,  also,  Kellogg  v. 
Stockwell,  75  111.68;  Moore  y.  Jones,  3 
Woods,  53.  In  National  Bank  v.  Case, 
supra,  Mr.  Justice  Strong  specifies 
the  gronnds  of  the  pledgee's  liability: 
"  One  is,  that  he  is  estopped  from  de- 

340 


nying  his  liability  by  voluntarily  hold- 
ing himself  out  to  the  public  as  the 
owner  of  the  stock,  and  ids  denial  of 
ownership  is  inconsistent  with  the  rep- 
resentations he  has  made.  Another  is 
that  by  taking  the  legal  title  he  has  re- 
leased the  former  owner;  and  a  third 
is  that  after  having  taken  the  apparent 
ownership  and  thus  become  entitled  to 
receive  dividends,  vote  at  elections, 
and  enjoy  all  the  privileges  of  owner- 
ship, it  would  be  inequitable  to  allow 
him  to  refuse  the  responsibilities  of  a 
stockholder." 


HIS   RIGHTS   AND   LIABILITIES   AS   A  STOCKHOLDER.      §  438.] 

A  pledgee  in  whom  the  legal  ownership  appears  to  be  is  subject 
to  the  same  liabilities  any  other  stockholder  is  subject  to.^  The 
pledgee  remains  liable  as  a  stockholder  even  after  the  debt  has 
been  paid  and  the  certificate  of  stock  indorsed  and  delivered  back 
to  the  pledgor,  if  the  latter  neglects  to  make  a  retransfer  upon 
the  books  of  the  company.  Until  such  retransfer  the  pledgee 
remains  the  legal  owner,  and  the  court  will  not  look  beyond  the 
legal  ownership  in  determining  the  liability  of  a  stockholder,  ex- 
cept, perhaps,  in  case  there  has  been  a  fraudulent  transfer  by  the 
real  owner  to  avoid  liability.^  Even  a  statute  declaring  that 
the  term  "  stockholder,"  as  regards  personal  liability,  shall  apply 
not  only  to  those  appearing  by  the  books  to  be  such,  but  also  to 
every  equitable  owner  of  stock  standing  in  the  name  of  another, 
would  seem  to  be  limited  to  cases  where  the  registered  owner  is 
merely  a  nominal  holder ;  such  for  instance,  as  a  trustee  who  has 
invested  funds  of  another  in  his  own  name,  or  perhaps  a  pledgee 
after  he  has  given  the  pledgor  a  power  of  attorney  to  transfer  the 
stock.  But  a  pledgor,  after  transferring  the  stock,  though  hav- 
ing still  an  equitable  interest,  is  not  in  any  proper  sense  an  owner. 
He  has  the  same  interest  that  he  would  have  under  an  executory 
agreement  to  purchase  stock  before  paying  the  price  and  obtain- 
ing a  transfer.^ 

And  so  where  a  person  loaned  money  to  a  national  bank  and 
received  as  collateral  security  a  certificate  of  the  bank's  own  stock, 
and  he  afterwards  received  dividends  thereon,  he  was  held  liable 
as  a  stockholder.^ 

438.  A  pledgee  cannot  escape  personal  liability  by  trans- 
ferring pledged  stock  to  an  irresponsible  person  to  hold  for 
his  benefit.  Therefore  a  bank  which  has  taken  the  shares  of 
another  bank  as  collateral  security  for  a  loan,  and  has  afterwards, 
while  the  latter  bank  was  in  a  failing  condition,  transferred  them 
on  the  books  of  the  latter  bank  to  one  of  its  own  clerks,  with  the 
understanding  that  he  should  retransfer  them  on  request,  is  liable 

1  Wheelock  v.  Kost,  77  111.  296;  199,  225;  See  Richardson  v.  Aben- 
Aultman's  Appeal,  98  Pa.  St.  505.  droth,  43  Barb.  (N.  Y.)  162. 

2  Adderly  v.  Stortn,  6  Hill  (N.  Y.),  *  Wheelock  v.  Kost,  supra,  also 
624;  Johnson  v.  Underbill,  52  N.  Y.  Pullman  v.  Upton,  96  U.  S.  328; 
203.  Johnson  v.  Lallin,  5  Dill.  65. 

'  Empire  City  Bank,  in  re,  18  N.  Y. 

341 


§§  439-441.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF   STOCK. 

to  contribute  as  a  stockholder  for  the  benefit  of  the  creditors  of 
the  bank  whose  shares  were  taken  in  pledge. 

439.  But  if  the  stock  is  transferred  in  the  first  instance  to 
a  third  person,  to  hold  for  the  benefit  of  the  pledgee,  the  latter  is 
not  responsible  as  a  stockholder.  And  so  where  a  borrower  who 
had  already  obtained  a  loan  from  a  warehouse  company  upon  a 
transfer  of  gas  stock  to  its  president,  desiring  to  obtain  a  further 
loan,  sent  to  the  company  certificates  of  stock  made  out  in  the 
name  of  its  president,  but  the  board  of  directors  objecting  to  cer- 
tificates in  this  form  on  the  ground  that  the  company  might  be 
liable  as  a  shareholder,  at  their  request  the  pi'esident  transferred 
the  stock  to  an  irresponsible  person  in  the  employment  of  the 
company;  upon  the  subsequent  insolvency  of  the  bank,  it  was 
held  in  a  suit  to  charge  the  company  as  a  shareholder,  that  it  was 
not  liable  as  such,  unless  it  had  authorized  or  ratified  the  transfer 
to  its  president  as  a  transfer  to  the  company  itself ;  and  that 
whether  it  had  authorized  such  a  transfer  was  a  question  for  the 
jury.i 

440.  If  a  pledgee  of  stock  sell  it  in  pursuance  of  a  power 
of  sale  upon  his  debtor's  default,  although  he  make  the  sale  be- 
cause he  believes  the  corporation  to  be  insolvent,  and  in  order  to 
escape  personal  liability  as  a  stockholder,  the  sale  is  not  voidable 
as  having  been  made  in  fraud  of  the  creditors  of  the  corporation. 
It  is  a  material  element  in  such  a  case  that  the  sale  is  made  in 
pursuance  of  a  contract  of  the  parties  made  at  the  time  of  the 
transfer  to  the  pledgee.^ 

441.  The  right  to  vote  upon  stock  belongs  to  the  person  in 
whose  name  it  is  registered,  although  he  may  have  pledged  it 
as  collateral  security  by  an  assignment  of  the  certificate.^  The 
records  of  the  corporation  must  necessarily  determine  who  are  its 
stockholders.    Even  after  a  stockholder  has  been  declared  a  bank- 

1  Anderson  v.  Phila.  Warehouse  Co.  ^  Becher  v.  Wells  Flouring  Mill 
4  Fed.  Rep,  130.  Co.  (C.  C.  D.  Minn.  1880)  1  Fed.  Rep. 

2  Magruder  v.  Colston,  44  Md.  349;  276  ;  Ex  parte  Willcocks,  7  Cow.  (N. 
S.  C.  Thompson's  Nat.  Bank  Cases,  Y.)  402  ;  In  re  Barker,  6  Wend, 
554;  Holyoke  Bank   v.  Burnham,  11  (N.  Y.)  509. 

Cush.  (Mass.)  183,  187. 
342 


HIS  RIGHTS   AND   LIABILITIES   AS   A   STOCKHOLDER.       [§  442. 


rupt  and  his  property  was  vested  in  his  assignee,  he  has  the  right 
to  vote  on  stock  still  standing  in  his  name.^ 

It  follows  from  this  that  a  pledgee  of  stock  is  not  ordinarily 
regarded  as  so  far  the  owner  of  stock,  as  to  be  entitled  to  notice 
of  the  meetings  of  the  corporation.^  The  pledgor  still  remains  a 
member  of  the  corporation  and  must  be  so  treated."^ 

Stock  which  a  corporation  itself  owns  cannot  be  voted  upon.* 

442.  One  in  whose  name  stock  is  registered  upon  the 
books  of  the  corporation  has  the  prima  facie  right  to  vote 
upon  it,  though,  in  fact,  he  may  hold  the  stock  as  pledgee  or 


1  State  V.  Ferris,  42  Conn.  560. 

^  McDaniels  v.  Flower  Brook  Manuf. 
Co.  22  Vt.  274. 

8  Merchants'  Bank  v.  Cook,  4  Pick. 
(Mass.)  405. 

In  several  states  it  is  provided  by 
statute  that  a  pledgor  of  stock  may 
represent  it  and  vote  upon  it  at  all 
meetino;s  of  the  stockholders. 

Indiana  :  R.  S.  1881,  §  3009. 

Maine:  When  the  owner  of  stock 
in  a  corporation  has  transferred,  mort- 
gaged or  in  any  way  pledged  the  same 
to  another  for  security  merely,  and 
it  so  appears  in  such  transfer,  mort- 
gage or  pledge  and  on  the  books  of 
the  corporation,  such  owner  shall  have 
the  right  to  vote  such  stock  in  all  meet- 
ings of  the  stockholders  until  his  right 
of  redemption  ceases.  Acts  1872,  c. 
69. 

Maryland  :  Until  forfeiture,  upon 
exhibiling  a  certificate  in  writing  from 
the  pledgee  that  the  stock  is  held  in 
pledge,  the  owner  may  vote.  An  ex- 
ecutor, administrator,  guardian,  or 
trustee,  holding  stock  may  vote  upon 
it.     R.  Co.le,  1878,  p.  316,  §  13. 

Missouri:  R.  S.  1879,  §  714. 

Nevada :  Any  stockholder,  who  has 
pledged  his  stock  by  delivery  of  the 
certificate,  may  nevertheless  represent 
the  same  at  all  meetinsjs  and  vote  as 


stockholder.  Comp.  Laws,  1873,  vol. 
2,  §  3400. 

In  New  Hampshire  the  pledgor  of 
stock  as  collateral  security  is  declared 
to  be  the  general  owner,  and  entitled 
to  all  the  rights  of  a  stockholder.  G. 
L.  1878,  p.  355,  §  12. 

Idaho  Territory:  R.  Laws,  1875, 
p.  622,  §12. 

New  Mexico  Territory :  G.  L. 
1880,  p.  206,  §  12.  The  provision  on 
this  subject  is  the  same  as  that  in 
Nevada.     G.  L.  1880,  214,  §  7. 

Washington  Territory :  The  same 
provision  here  also.  Code  1881, 
§    2432. 

Wyoming  Territory:  The  same 
provision  here  also.  Comp.  Laws, 
1876,  c.  34,  §  17. 

*  Ex  parte  Barker,  6  Wend.  (N.  Y.) 
509;  Ex  parte  Desdoity,  1  lb.  98,  99; 
Page  V.  Smith,  48  Vt.  266;  American 
Railway-Frog  Co.  v.  Haven,  101  Mass. 
398. 

Under  a  statute  requiring  the  writ- 
ten assent  of  stockholders  owning  two 
thirds  of  the  capital  stock  of  a  cor- 
poration to  authorize  a  mortgage  of  its 
property,  the  corporation  itself  can- 
not assume  to  sign  as  the  owner  of  cer- 
tain shares  of  its  own  stock  which  it 
has  pledged  to  secure  a  loan. 

Vail  V.  Hamilton,  20  Hun.  (N.  Y.) 
355. 

343 


§  443.]        RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

trustee  for  a  pledgee.^  But  if  his  only  title  is  that  of  pledgee, 
and  that  title  is  the  full  measure  of  his  rights  and  authority  as 
regards  the  stock,  the  pledgor  is  entitled,  upon  proof  of  his 
general  ownership,  to  vote  upon  the  stock,  thougli  he  has  pledged 
it  for  its  full  value.2  A  trustee  holding  the  stock  for  the  pledgee 
has  no  greater  rights.  The  trustee  in  such  case  is  merely  an 
agent  of  the  creditor,  and  the  delivery  or  transfer  of  the  stock  to 
him  amounts  to  the  same  as  a  delivery  of  it  to  the  creditor. 

Stock  belonging  to  tlie  corporation  itself,  though  transferred 
to  a  trustee  to  hold  in  pledge  for  a  creditor,  cannot  be  voted 
upon  by  any  person.^  It  cannot  be  voted  upon  by  the  corpora- 
tion in  which  the  general  property  remains,  or  by  any  one  in  its 
behalf,  and  it  cannot  be  voted  upon  by  the  trustee  in  behalf  of 
the  pledgee. 

443.  But  it  does  not  follow  that  a  pledgee  or  his  trustee 
will  be  restrained  by  injunction  from  voting  upon  the  stock 
standing  upon  the  books  of  the  company  in  his  name  ■without 
intimation  that  he  is  not  the  absolute  owner  of  it.  In  a  recent 
case  in  New  York  a  pledgor  of  certain  shares  of  the  stock  of  the 
Cleveland,  Columbus,  Cincinnati  and  Indianapolis  Railway  Com- 
pany, which  had  been  transferred  to  a  trustee  for  the  pledgee, 
obtained  a  temporary  injunction  against  the  trustee's  voting  upon 
the  stock.  The  plaintiff's  complaint  alleged  that  the  trustee, 
who  was  the  president  of  the  New  York,  Lake  Erie  and  Western 
Railway  Company,  by  reason  of  his  control  of  the  pledged  shares, 
had  been  enabled  to  control  the  management  of  the  former  cor- 
poration, and  had  managed  the  same  without  regard  to  its  best 
interests,  and  so  as  to  subserve  the  interests  of  the  corporation 
of  which  he  was  president ;  that  the  trustee  had  voted  on  these 
shares  at  previous  elections  held  by  the  stockholders,  and  claimed 
the  right  to  do  so  at  future  elections ;  that  it  was  greatly  against 
the  pledgor's  interest  to  permit  the  trustee  so  to  vote,  and  that 
the  pledgor  would  suffer  great  and  irreparable  injury  if  the 
trustee  should  be  permitted  to  do  so.  The  Court  of  Appeals, 
however,  reversed  the  action  of  the  Supreme  Court,  and  held 
that  the  temporary  injunction  was  unauthorized.*     Chief  Justice 

1  In  re  Barker,  6  Wend.  (K  Y.)         ^  Brewster  y.  Hartley,  37  Cal.  15. 
509;    In  re  Mohawk  &  Hudson  R.  R.         *  Brewster  u.  Hartley,  swpra. 
Co.  19  Wend.  (N.  Y.)  135.  •*  McHenry  v.  Jewett,  90  N.  Y.  58, 

344  62,  reversing  S.  C.  26  Hun,  453. 


HIS    RIGHTS   AND   LIABILITIES   AS   A   STOCKHOLDER.      [§  444. 

Andrews,  delivering  the  opinion  of  the  Court,  said  :  "  It  is  not 
sufficient  to  authorize  the  remedy  by  injunction,  that  a  violation 
of  a  naked  legal  right  of  property  is  threatened.  There  must 
be  some  special  ground  of  jurisdiction  ;  and  where  an  injunction 
is  the  final  relief  sought,  facts  which  entitle  the  plaintiff  to  this 
remedy  must  be  averred  in  the  complaint,  and  established  on  the 
hearing.  The  complaint  in  this  case  is  bare  of  any  facts  author- 
izing final  relief  by  injunction.  It  is  true  that  it  is  alleged  that 
the  defendant,  by  the  use  of  the  shares,  has  been  enabled,  to  a 
great  extent,  to  control  the  management  of  the  corporation  in 
the  interest  of  the  New  York,  Lake  Erie  and  Great  Western 
Railway  Company,  with  little  or  no  regard  to  the  best  interests 
of  the  company  issuing  the  shares.  But  there  are  no  facts  sup- 
porting this  allegation,  nor  is  it  averred  that  the  interests  of  the 
latter  company  have  been  prejudiced,  or  that  the  value  of  the 
shares  has  been  impaired  by  the  acts  of  the  defendant.  So  also 
it  is  alleged  that  it  is  greatly  against  the  plaintiff's  interest  as  a 
shareholder  to  permit  the  defendant  to  vote  upon  the  shares,  and 
that  the  plaintiff  will  suffer  great  and  irreparable  injury  if  the 
defendant  is  permitted  to  do  so.  But  no  facts  justifying  these 
conclusions  are  stated ;  and  the  mere  allegation  of  serious  or 
irreparable  injury,  apprehended  or  threatened,  not  supported  by 
facts  or  circumstances  tending  to  justify  it,  is  clearly  insufficient. 
Neither  injury  to  the  plaintiff's  pi'operty,  inadequacy  of  legal 
remedy,  or  any  pressing  or  serious  emergency,  or  danger  of  loss, 
or  other  special  ground  of  jurisdiction,  is  shown  by  the  com- 
plaint. The  complaint,  therefore,  does  not  show  that  the  plaintiff 
is  entitled  to  final  relief  by  injunction." 

444.  A  creditor  voting  upon  stock  held  in  pledge  does 
not  thereby  convert  it  to  his  own  use,  and  make  it  his 
own.^ 

A  person  holding  stock  of  a  corporation  merely  as  collateral 
security,  without  participating  in  its  meetings,  is  not  so  far  a  part 
of  the  corporation  as  to  be  chargeable  with  knowledge  of  facts  in 
possession  of  the  corporation  or  its  officers.^  Nor  is  he  so  far 
the  owner  of  the  stock  as  to  be  entitled  to  notice  of  the  meetings 

1  Heath  V.  SilvcTthorn  Lead  Mining  ^  Baker  v.  Woolston,  27  Kans.  185. 
&  Snieltin''  Co.  30  Wife.  146,  157. 

845 


§§445,  446.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

of  the  corporation.!     The  pledgor  is  still  the  owner  of  the  stock, 
and  a  member  of  the  corporation .^ 

445.  The  statutes  of  several  states  exempt  those  who 
hold  stock  in  a  representative  capacity,  or  by  way  of 
security,  from  the  usual  liabilities  of  stockholders.  There 
is  a  manifest  justice  in  such  statutes  which  should  lead  to  their 
adoption  in  every  state.  Corporate  stocks  now  represent  a  large 
share  of  the  capital  or  property  of  the  country,  and  it  is  import- 
ant, as  a  matter  of  commercial  policy,  that  ready  use  of  such 
capital  in  general  business  should  be  made  as  safe  and  convenient 
as  possible.  If  a  person  taking  stock  merely  as  collateral  security 
is  to  be  made  liable  as  a  general  stockholder,  in  place  of  the  owner 
of  the  stock,  he  may  well  hesitate  to  incur  liabilities  he  knows  not 
of  by  becoming  a  stockholder,  and  may  well  decline  to  take  such 
collateral  unless  he  has  a  full  knowledge  of  the  affairs  of  the  cor- 
poration. In  a  late  case  before  the  Supreme  Court  of  the  United 
States,  it  was  remarked  that  "  the  courts  in  England,  and  some 
in  this  country,  have  gone  very  far  in  sustaining  a  liability  for 
unpaid  subscriptions  to  stock  against  persons  holding  the  same 
in  any  capacity  whatever,  whether  as  trustees,  guardians,  or  ex- 
ecutors, or  merely  as  collateral  security.  It  cannot  be  denied 
that,  in  some  cases,  the  extreme  length  to  which  the  doctrine  has 
been  pushed  has  operated  very  harshly ;  and  in  cases  in  which 
the  corporation  itself  has  no  just  right  to  enforce  payment,  and 
■where  no  bad  faith  or  fraudulent  intent  has  intervened,  it  may  be 
doubted  whether  creditors  have  any  better  right,  unless  by  force 
of  some  express  provision  of  a  statute."  ^ 

446.  Colorado.*  —  No  person  holding  stock  in  any  corpora- 
tion as  executor,  administrator,  conservator,  guardian,  or  trustee, 
and  no  person  holding  such  stock  as  collateral  security,  shall  be 
personally  subject  to  any  liability  as  stockholder  of  such  corpora- 
tion, but  the  person  pledging  such  stock  shall  be  considered  as 
holding  the  same,  and  shall  be  liable  as  a  stockholder  accord- 
ingly, and  the  estate  and  funds  in  the  hands  of  such  executor, 

1  McDaniels  w.  Flower  Brook  Manuf.  ^  Burgess  v.  Seligman  (Supreme  Ct. 
Co.  22  Vt.  274.  U.  S.  Jan.  29,  1883),   2  S.  C.  Rep.  10, 

2  Merchants'  Bank  v.  Cook,  4  Pick.  15.     Per  Bradley,  J. 
(Mass.)  405.  ^  G.  L.  1877,  p.  150,  §  210. 

346 


HIS   RIGHTS   AND   LIABILITIES   AS   A   STOCKHOLDER.      [§§  447-449. 

administrator,  conservator,  guardian,  or  trustee  shall  be  liable  in 
like  manner,  and  to  the  same  extent,  as  the  testator  or  intestate, 
or  the  ward  or  person  interested  in  such  trust  funds  would  have 
been,  if  he  had  been  living,  and  had  been  competent  to  act  and 
held  the  stock  in  his  own  name. 

447.  Dakota  Territory.^  —  Stock  held  as  collateral  security, 
or  by  a  trustee,  or  in  any  representative  capacity,  does  not  make 
the  holder  thereof  a  stockholder,  so  as  to  charge  him  with  the 
debts  or  liabilities  of  the  corporation  ;  but  the  pledgor,  or  person, 
or  estate  represented,  is  to  be  deemed  the  stockholder,  as  respects 
such  liability. 

448.  In  Indiana  ^  it  is  enacted  that  no  person  holding  stock 
in  any  company,  as  executor,  administrator,  guardian,  or  trustee, 
or  as  collateral  security,  shall  be  personally  subject  to  any  lia- 
bility as  stockholder  of  such  company,  but  the  estate  and  funds 
in  the  hands  of  such  executor,  administrator,  guardian,  or  trustee, 
shall  be  liable  therefor,  and  the  person  pledging  his  stock  as 
aforesaid,  shall  be  considered  as  holding  the  same. 

Every  such  executor,  administrator,  guardian,  or  trustee,  shall 
represent  the  share  of  stock  in  his  hands,  and  vote  as  a  stock- 
holder, and  every  person  who  shall  pledge  his  stock  as  aforesaid, 
may,  nevertheless,  represent  the  same  at  such  meetings,  and  vote 
accordingly. 

449.  Maryland.^ — No  person  holding  stock  in  any  such  cor- 
poration as  executor,  administrator,  guardian,  or  trustee,  and  no 
person  holding  such  stock  as  collateral  security,  shall  be  per- 
sonally subject  to  any  liability  as  stockholder  of  such  corporation  ; 
but  the  person  pledging  the  stock  shall  be  considered  as  holding 
the  same,  and  shall  be  liable  as  stockholder  accordingly,  and  the 
estates  and  funds  in  the  hands  of  such  executor,  administrator, 
guardian,  or  trustee,  shall  be  liable  in  like  manner,  and  to  the 
same  extent  as  the  testator  or  intestate,  or  ward,  or  person  inter- 
ested in  such  trust  fund,  would  have  been  if  he  had  been  living 

1  Laws  1879,  c.  9,  p.   14.     But  a  «  Stats.  1876,  p.  371,  §§  8,  9  ;  R.  S. 

trustee     voluntarily    investing     trust  1881,  §§  3008,  3009. 

funds  in  stock  is,  to  a  certain  extent,  ^  K.  Code,  1878,  p.  323,  §  61. 
liable  as  a  stockholder. 

347 


§§  450-452.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

and  competent   to  act,   and   held    the  same  stock  in  his   own 
name. 

450.  Massachusetts.  ^ —  In  transfers  of  stock  as  collateral 
security  the  debt  or  duty  which  such  transfer  is  intended  to 
secure  shall  be  substantially  described  in  the  deed  or  instrument 
of  transfer.  A  certificate  of  stock  issued  to  a  pledgee  or  holder 
of  such  collateral  security  shall  express  on  the  face  of  it  that  the 
name  is  so  holden  ;  and  the  name  of  the  pledgor  shall  be  stated 
therein,  who  alone  shall  be  responsible  as  a  stockholder. 

It  is  held  that  a  person  who  takes  a  certificate  of  stock  in  a 
corporation  as  collateral  security  for  a  debt,  is  subject  to  liability 
for  the  debts  of  the  corporation  unless  the  certificate  shows  that 
the  shares  are  so  holden  ;  and  the  burden  is  on  him  to  show  the 
form  of  the  certificate.^ 

451.  In  Missouri  ^  no  person  holding  stock  in  a  business  cor- 
poration as  executor,  administrator,  guardian,  or  trustee,  and  no 
person  holding  such  stock  as  collateral  security,  shall  be  person- 
ally subject  to  any  liability  as  a  stockholder  of  such  corporation  ; 
'but  the  person  pledging  such  stock  shall  be  considered  as  holding 
the  same,  and  shall  be  liable  as  a  stockholder  accordingly. 

452.  New  York.*  —  No  person  holding  stock  in  any  com- 
pany, as  executor,  administrator,  guardian,  or  trustee,  and  no 
person  holding  such  stock  as  collateral  security,  shall  be  person- 
ally subject  to  any  liability  as  stockholder  of  such  company  ; 
but  the  person  pledging  such  stock  shall  be  considered  as  hold- 
ing the  same,  and  shall  be  liable  as  a  stockholder  accordingly; 
and  the  estates  and  funds  in  the  hands  of  such  executor,  admin- 
istrator, guardian,  or  trustee,  shall  be  liable  in  like  manner,  and 
to  the  same  extent  as  the  testator,  or  intestate,  or  the  ward,  or 
person  interested  in  such  trust  fund  would  have  been,  if  he  had 

1  P.  S.  1882,  c.  105,  §  25,  These  decisions   are   overruled   by 

2  Barre  Nat.  Bank  v.  Hingham  the  Supreme  Court  of  the  United 
Manuf.  Co.  127  Mass.  563.  States    in    Burgess   v.    Seligman   (de- 

3  1  R.  S.  1879,  §§  934,  935.  For  cided  Jan.  29,  1883),  27  Alb.  L.  J. 
construction  of  this  statute,  see  §§  256;  S.  C.  2,  Supreme  Ct.  Rep. 
457,  458,  and  Fisher  v.  Seligman,  75  10. 

Mo.  13;  Griswold  v.  Seligman,  72  Mo.         «  2  R.  S.  1881,  p.  1548,  §  11. 
110. 

348 


HIS  RIGHTS   AND   LIABILITIES   AS   A   STOCKHOLDER.      [§§  453-456. 

been  living  and  competent  to  act,  and  held  the  same  stock  in  his 
own  name. 


453.  Ohio.^  —  The  term  "  stockholders,"  as  used  in  the  stat- 
utes regarding  personal  liability,  applies  not  only  to  such  persons 
as  appear  by  the  books  of  the  corporation  to  be  such,  but  to  any 
equitable  owner  of  stock,  although  this  appears  on  the  books  in 
the  name  of  another. 

454.  Washington  Territory. ^ —  No  person  holding  stock  as 
executor,  administrator,  guardian,  or  trustee,  or  holding  it  as  col- 
lateral security,  or  in  pledge,  shall  be  personally  subject  to  any 
liability  as  a  stockholder  of  the  company  ;  but  the  person  pledg- 
ing the  stock  shall  be  considered  as  holding  the  same,  and  shall 
be  liable  as  a  stockholder,  and  the  estate  and  funds  in  the  hands 
of  the  executor,  administrator,  guardian  or  trustee  shall  be 
liable  in  like  manner,  and  to  the  same  extent  as  the  testator,  or 
intestate,  or  the  ward  or  person  interested  in  the  trust  fund 
would  have  been  if  he  or  she  had  been  living  and  competent  to 
act  and  hold  the  stock  in  his  or  her  name. 

455.  Wisconsin.^  —  No  person  holding  stock  in  any  such  cor- 
poration as  executor,  administrator,  guardian,  or  trustee,  and  no 
person  holding  such  stock  as  collateral  security,  shall  be  person- 
ally subject  to  any  liability  as  stockholder  of  such  corporation, 
for  any  calls  or  installments  on  any  past  paid  stock  thereof ;  but 
the  person  pledging  such  stock  shall  be  considered  as  holding  the 
same,  and  shall  be  liable  as  a  stockholder  accordingly  ;  and  the 
estates  and  funds  in  the  hands  of  such  executor,  administrator, 
guardian,  or  trustee,  shall  be  liable  in  like  manner  and  to  the 
same  extent,  as  the  testator  or  intestate,  ward  or  person  inter- 
ested would  have  been,  if  he  had  been  living,  or  competent  to 
act,  and  held  the  same  stock  in  his  own  name. 

456.  Wyoming  Territory.*  —  No  person  holding  stock  as  col- 
lateral security  shall  be  personally  subject  to  any  liability  as 
stockholder  of  such  company,  but  the  person  pledging  such  stock 

1  R.  S.  1880,  §  325!).  *  Compiled  Laws,  1876,  c.  34,  §§  16, 

2  Code  1H81,  §  2435.  17. 
«  K.  S.  1878,  p.  532,  §  1827. 

349 


§  457.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

shall  be  considered  as  holding  the  same,  and  shall  be  liable  as  a 
stockholder  accordingly. 

457.  One  to  whom  a  corporation  has  pledged  its  own 
stock  is  entitled  to  the  benefit  of  a  statute  which  exempts 
a  pledgee  from  liability  as  a  stockholder,  and  ^  continues  the 
liability  of  the  pledgor.  This  question  has  arisen  under  the 
statute  of  Missouri,  and  was  decided  by  the  Supreme  Court  of 
that  state  contrary  to  the  proposition  stated  above.^  One  ground 
of  the  decision  was  that  in  case  of  such  a  pledge  by  the  corpora- 
tion itself  of  stock  which  has  never  been  issued  in  the  usual 
course  of  business,  unless  the  pledgee  becomes  a  stockholder  with 
a  stockholder's  liabilities,  there  is  no  person  who  can  be  made 
liable  as  a  stockholder ;  that  in  every  case  of  a  pledge  within  the 
meaning  of  the  statute,  there  must  be  a  stockholder  whom  the 
law  still  regards  as  a  stockholder  with  a  stockholder's  responsi- 
bilities ;  that  if  there  is  not  a  pledgor  who  occupies  the  position 
of  a  stockholder,  there  must  be  a  pledgee  who  is  responsible  as  a 
stockholder;  that  there  must  be  some  one  against  whom  a  cred- 
itor can  seek  redress  in  case  the  corporation  becomes  insolvent. 
For  these  reasons  the  state  court  held  that  the  statute  was  inap- 
plicable in  case  of  a  pledge  by  a  corporation  of  its  unissued 
stocks. 

Upon  this  part  of  the  case  Mr.  Justice  Bradley,  delivering  the 
opinion  of  the  Supreme  Court  of  the  United  States  adversely  to 
the  judgment  of  the  state  court,  said :  ^  "  The  argument  that  the 
exemption  from  liability  in  cases  of  stock  held  as  collateral  se- 
curity applies  only  to  those  who  have  received  it  from  third  per- 
sons who  were  stockholders,  and  who  can  be  proceeded  against  as 
such,  seems  to  us  unsound,  and  contrary  both  to  the  words  and 
the  reason  of  the  law.  It  takes  for  granted  that  stock  cannot  be 
received  as  collateral  security  from  the  corporation  itself,  and  still 
belong  to  the  corporation,  and  yet  we  know  that  such  transac- 
tions are  very  common  in  the  business  of  the  country.  .  .  .  The 
argument  is  that  the  words  of  the  statute  imply  that  there  must 
always  be  some  person  or  estate  to  respond  for  the  stock,  or  else 

1  Burgess  v.  Seligman  (Supreme  Ct.  ^  Fisher  v.  Seligman,  75  Mo.  13  ; 

U.  S.  Jan.   29,  1883),   27  Alb.  L.  J.  Griswold  v.  Seligman,  72  Mo.  110. 

256  ;    S.  C.  2   Supreme  Ct.  Kep.  10,  ^  Burgess  v.  Seligman,  supra. 
2i. 

350 


HIS   RIGHTS   AND   LIABILITIES   AS   A   STOCKHOLDER.      [§  458. 

the  exemption  cannot  take  effect.  The  obvious  answer  is  that 
this  clause  fixes  the  liability  upon  the  pledgor  as  a  stockholder, 
where  there  is  a  pledgor  who  can  be  made  liable  in  that  char- 
acter. When  the  coi-poration  pledges  its  own  stock  as  collateral 
security,  though  it  cannot  be  proceeded  against  as  a  stockholder 
eo  nomine,  the  reason  is  because  it  is  primarily  liable,  before  all 
stockholders,  for  all  its  debts.  In  such  a  case  the  clause  last 
quoted  would  not  strictly  apply  to  it ;  but  the  holder  of  its  stock 
as  collateral  security  would  be  within  both  the  letter  and  the 
spirit  of  the  first  clause.  It  is  supposed  that  some  flagrant  in- 
justice would  ensue  if  there  was  not  some  one  w^ho  could  be 
reached  as  a  stockholder  in  every  case  of  stock  pledged  as  col- 
lateral security;  hence,  stock  pledged  by  the  corporation  itself 
must  be  regarded  as  belonging  to  the  pledgee,  though  no  other 
pledgee  of  stock  is  treated  in  this  way.  Where  is  the  justice  of 
this  ?  Why  should  the  stock  be  necessarily  considered  as  be- 
longing to  some  one  besides  the  corporation  itself  ?  Is  any  one 
harmed  by  considering  the  corporation  as  its  true  owner  ?  If  the 
stock  had  not  been  issued  as  collateral  security,  it  would  not 
have  been  issued  at  all ;  it  would  not  have  been  in  existence. 
Would  the  ci'editors  have  been  any  better  off  in  such  case  ? 
They  are  better  off  by  the  issue  of  the  stock  us  collateral,  be- 
cause the  general  assets  of  the  company  here  received  the  benefit 
of  the  moneys  obtained  by  means  of  the  pledge.  The  more 
closely  the  matter  is  examined,  the  more  unreasonable  it  seems 
to  deny  to  a  pledgee  of  the  corporation  the  same  exemption 
which  is  extended  to  the  pledgee  of  third  persons.  We  think 
that  the  one  equally  with  the  other  is  protected  by  the  express 
words  and  true  spirit  of  the  law." 

458.  A  pledgee  of  a  corporation's  own  stock  is  entitled  to 
a  statutory  exemption  from  liability,  though  he  has  voted 
upon  the  stock  without  having  special  authority  to  do  so.^  It 
was  adjudged  otherwise  by  the  Supreme  Court  of  Missouri  in  a 
case  where  a  person  had  taken  from  the  corporation  as  security 
for  advances  a  certificate  for  a  majority  of  its  capital  stock  abso- 
lute upon  its  face,  and  had  voted  upon  it  and  controlled  the  elec- 
tion of  the  oificers  of  the   corporation.     It  was   held   that  the 

*  Burgess  v.  Seligman  (Supreme  Ct.  U.  S.,  Jan.  29,  1883),  27  Alb.  L. 
J.  256,  S.  C.  2  Supreme  Ct.  Rep.  10. 

351 


§  458.]      RIGHTS   AND   LIABILITIES   OF  A   PLEDGEE   OF  STOCK. 

pledgee  by  voting  upon  the  stock  without  having  any  contract 
authority  to  do  so  was  estopped  to  deny  that  he  was  a  stock- 
holder, and  he  was  made  liable  as  such  both  to  the  corporation 
and  to  its  creditors.  The  stock  having  been  pledged  by  a  written 
contract  containing  no  such  authority,  it  was  declared  that  it  was 
not  even  competent  for  the  pledgee  to  show  that  there  was  a 
verbal  understanding  that  he  should  have  the  privilege  of  voting 
upon  the  stock. ^ 

But  the  Supreme  Court  of  the  United  States  upon  the  same 
facts  made  a  contrary  decision  which  must  settle  the  law  not 
merely  by  reason  of  the  authority  of  the  court  but  also  by  virtue 
of  the  conclusiveness  of  its  reasoning,  which  can  be  stated  here 
only  in  part.  Mr.  Justice  Bradley  speaking  for  the  court  said  : 
"  If  the  law  allows  stock  to  be  held  in  trust,  or  as  cohateral  se- 
curity, without  personal  liability,  and  if,  as  we  suppose,  the  clear 
effect  of  the  contract  was  to  create  such  a  holding  in  this  case, 
we  do  not  see  how  the  doctrine  of  estoppel  can  apply.  The  only 
parties  to  complain  would  be  the  other  stockholders,  who  might, 
perhaps,  complain  that  stock  held  mei'ely  in  trust,  or  as  collateral 
security,  is  not  entitled  to  participate  with  them  in  the  privilege 
of  voting.  But  from  them  no  complaint  is  heard.  Creditors 
could  not  complain,  for,  on  the  hypothesis  that  stock  may  lavv- 
fullv  be  held  at  all  in  trust,  or  as  collateral  secuinty,  without  in- 
curring liability  to  them,  the  act  of  voting  on  tlie  stock  cannot 
injure  or  affect  them.  In  the  absence  of  such  a  law  the  case 
might  be  very  different.  Undoubtedly  it  has  been  held,  in  cases 
innumerable,  that  acting  as  a  stockholder  binds  one  as  such  ;  but 
that  is  where  the  law  does  not  allow  stock  to  be  held  at  all  with- 
out incurring  all  the  liabilities  incident  to  such  holding.     The 

1  Griswoldu.  Seligraan,  72Mo.  110,  claimed  and  exercised.      This  being 

124.    "  This  is  a  case  where  acts  speak  tlae  case  they  certainly  cannot  be  heard 

louder  than  words;    where  plausible  to  gainsay  their  heretofore  admitted 

theories   go   for   nothing,  when   con-  title;  to  assert  that  title,  if  there  was 

fronted  by  palpable  facts.     We  can-  a  profit,  and   deny  it  if  there  was  a 

not   impute    to   the    pledgees    either  loss."    Per  Sherwood,  C  J.    Affirmed 

ignorance  of,  or  a  desire  to  violate  the  in  Fisher  v.  Seliginan,  75  Mo.  13. 

law,  and  so  must  conclude  that  they  Matthews   v.  Albert,    24    Md.  527 ; 

by  the  act  of  voting  the  stock  repre-  McMahon  v.  Macy,  51  N.  Y.  155,  to 

sented  themselves  to  the  corporation,  the  contrary  are  distinguished  in  Gris- 

and  were  by  the  corporation  regarded  wold  v.  Seligman,  supra. 
as  fully  entitled  to  the  privileges  they 

352 


HIS  RIGHTS  AND   LIABILITIES   AS   A   STOCKHOLDER.      [§  459. 

present  is  an  action  at  law  based  upon  the  supposed  liability  of 
the  defendants  under  a  statute  which  makes  the  distinction  re- 
ferred to,  and  which  does  not  make  all  stockholders  liable  indis- 
criminately. ...  It  is  by  no  means  clear,  however,  that  the 
pledgee  did  not  have  a  right  to  vote  on  the  stock,  even  as  against 
the  stockholders.  When  the  law  provides  that  if  a  person  holds 
stock  as  a  trustee,  or  by  way  of  collateral  security  only,  he  shall 
not  be  personally  liable  for  the  company's  debts,  it  supposes  that 
the  stock  shall  be  holden,  and  that  the  pledgee  or  trustee  shall 
be  the  holder.  If,  then,  the  law  is  to  have  any  force  or  effect, 
the  mere  fact  of  holding  cannot  be  set  up  as  a  bar  or  estoppel 
against  proof  of  the  manner  and  character  of  such  holding. 
And  if  such  pledgee  or  trustee  may  be  a  holder  of  the  stock 
in  tliat  character,  is  he  bound  to  be  perfectly  passive  in  his  hold- 
ing ?  He  will  not  be  entitled  to  any  dividends  or  profits,  it  is 
true,  or,  if  he  receives  dividends  or  profits,  he  must  account 
therefor ;  but  is  it  certain  that  he  may  not  lawfully  vote  on  the 
stock?  An  executor,  administrator,  guardian,  or  trustee  cer- 
tainly may  vote ;  and  where  is  the  rule  to  be  found  that  a  holder 
for  collateral  security,  under  a  law  which  permits  such  holding, 
may  not  vote  on  the  stock  so  held  without  losing  his  character 
as  a  mere  pledgee?  But,  as  before  said,  if  the  pledgee  in  vot- 
ing on  the  stock  exceeds  his  right  as  such  pledgee,  it  cannot  have 
the  effect  of  making  the  stock  his  own.  No  one  is  injured,  and 
no  one  can  complain  except  the  other  stockholders  whose  rights 
are  invaded." 

459.  This  view  is  sustained  by  decisions  in  cases  arising 
under  other  statutes  similar  to  that  of  Missouri.  Thus  it  was 
so  decided  in  Maryland,  with  reference  to  a  statute  of  that  state, 
from  which  the  Missouri  statute,  so  far  as  relates  to  the  excep- 
tion of  those  holding  stock  in  trust  or  as  collateral  security,  was 
copied.  It  was  sought  to  charge  one  who  had  loaned  money  to 
the  corporation  and  had  taken  from  it  a  certificate  of  stock,  as 
security  for  its  payment,  as  a  general  stockholder,  and  liable  for 
the  eom^Jany's  debts.  The  certificate  was  originally  issued  to 
him  in  absolute  form,  but  after  its  issue,  an  indorsement  was 
made  on  it  by  the  president  of  the  corporation,  to  the  eifect  that 
it  had  been  deposited  with  the  liolder  as  collateral  security  for  a 
loan.  It  was  held  that  the  holder  of  the  certificate  was  not  per- 
23  353 


§§  460,  461.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

sonally  subject  to  any  liability  as  a  stockholder,  but  was  protected 
by  the  exemption  in  the  statute.^ 

A  similar  decision  was  made  in  New  York  in  a  case  arising 
upon  a  like  statute.  The  certificate  pledged  in  this  case  was 
one  that  had  been  regularly  issued  by  the  corporation  in  the 
usual  course  of  business.  It  was  an  absolute  transfer  of  the  stock 
to  the  pledgee,  but  it  was  held  that  it  might  be  shown  by  parol 
evidence  that  the  transfer  was  in  fact  made  to  him  as  collateral 
security.^ 

The  Supreme  Court  referring  to  these  decisions  and  approving 
them  said :  ^  "  We  do  not  well  see  how  any  different  conclusion 
could  logically  have  been  arrived  at.  If  the  law  declares  that 
stock  held  as  collateral  security  shall  not  make  the  holder  liable, 
surely  it  must  be  competent  to  show  that  it  is  so  held.  And 
when  this  fact  is  once  established,  there  is  an  end  of  the  applica- 
tion of  estoppel,  unless  it  can  be  invoked  by  some  party  who  has 
been  specially  misled  by  the  conduct  of  the  defendants." 

460.  If  one  to  whom  stock  has  been  pledged  continues  to 
hold  it  after  the  debt  is  paid  by  a  certificate  in  his  own  name 
under  an  agreement  made  at  the  time  of  taking  the  stock  that 
he  would  sell  the  stock  if  he  could,  and  he  does  not  return  the 
stock  to  the  foi-mer  owner  until  the  corporation  has  become  in- 
solvent, he  is  not  exempt  from  liability  to  the  creditors  of  the 
corporation  as  being  a  pledgee,  or  even  as  holding  the  stock  as 
trustee ;  but  as  to  such  creditors  he  stands  in  the  shoes  of  the 
former  owner.  ^ 

II.  His  Rights  Acquired  in  Good  Faith  from  the  Apparent 

Owner. 

461.  A  certificate  of  stock  in  a  corporation  is  not  a  negoti- 
able instrument ;  and  a  hand  fide  assignee  of  such  a  certificate, 
with  a  power  to  transfer  the  stock,  takes  it  subject  to  the  equi- 

1  Matthews  v.  Albert,  24  Md.  527.       pany     incontrovertible    evidence     of 

2  McMalion  v.  Macy,  51  N.  Y.  l.'io.     ownership  of  stock.     A   person  may 
The  commissioners  of  appeal  said  :     be  the  absolute   legal   and   equitable 

"  It  is  always  competent  to  show  that  owner  of  stock  without  any  transfer 

an  assignment  or  conveyance  absolute  appearing  upon  the  books." 

in  form,  was  only  intended  as  a  secur-  ^  Burgess  v.  Seligman,  supra. 

ity.     There  is  nothing  in  any  statute  *  Erskine   v.  Lowenstein,    11    Mo. 

which  makes  the  books  of  the  com-  App.  595. 

354 


HIS   RIGHTS  ACQUIRED   IN   GOOD  FAITH. 


[§  461. 


ties  existing  against  the  assignor,^  whether  in  favor  of  the  cor- 
poration or  of  a  third  person.  Therefore  if  a  certificate  of  stock 
be  fraudulently  issued  by  the  agent  of  a  corporation,  to  one  not 
entitled  to  the  stock  and  such  holder  assign  it  as  collateral 
security  for  a  loan  of  money,  although  the  lender  take  the  cer- 
tificate in  good  faith,  relying  upon  its  genuineness,  he  cannot 
as  the  holder  of  a  negotiable  instrument  claim  the  rights  of  a 
stockholder.  But  he  is  entitled  to  relief  upon  another  ground. 
The  certificate  having  been  issued  under  the  corporate  seal  with 
the  signatures  of  the  proper  officers  acting  within  the  scope  of 
their  apparent  authority,  the  corporation  is  estopped  from  repu- 
diating the  instrument ;  and  the  holder  having  an  equitable  title 
may  require  the  corporation  to  respond  in  damages,  if  it  is  un- 
able to  transfer  the  stock  to  him  by  reason  of  having  already 
issued  the  full  amount  of  its  authorized  shares.^  A  corporation 
not  less  than  an  individual  is  answerable  for  the  conduct  of  its 
agents  in  the  business  intrusted  to  their  care.  The  fact  that  the 
assignor  of  such  certificate  was  cognizant  of  the  fraud  of  the  offi- 
cers of  the  corporation  in  issuing  it,  or  even  participated  in  such 


1  Mecbanics'  Bank  v.  N.  Y.  &  N.  H. 
R.  R.  Co.,  13  N.  Y.  599,  626.  The 
subject  was  fully  examined  in  this 
case  arising  out  of  a  fraudulent  over- 
issue of  stoek  of  the  defendant  cor- 
poration by  its  agent  Schuyler.  Upon 
this  point  Comstock,  J.,  said:  "  Stocks 
are  not  like  bank  bills,  the  immediate 
representative  of  money,  and  intended 
for  circulation.  The  distinction  be- 
tween a  bank  bill  and  a  share  of  bank 
stock  it  is  not  difficult  to  appreciate. 
Nor  are  they,  like  notes  and  bills  of 
exchange,  less  adapted  to  circulation, 
but  invented  to  supply  the  exigencies 
of  commerce,  and  governed  by  the 
peculiar  code  of  the  commercial  law. 
They  are  not  like  exchequer  bills  and 
government  securities,  which  are  made 
negotiable  either  for  circulation  or  to 
find  a  market.  Nor  are  they  like  cor- 
poration bonds,  which  are  issued  in 
negotiable  form  for  sale,  and  as  a 
means  for  raising  money  for  corporate 
uses.      The    distinction    between    all 


these  and  corporate  stocks  is  marked 
and  striking.  They  are  all  in  some 
form  the  representative  of  money,  and 
may  be  satisfied  by  payment  in  money 
at  a  time  specified.  Certificates  of 
stock  are  not  securities  for  money  in 
any  sense,  much  less  are  they  negoti- 
able securities.  They  are  simply  the 
muniment  and  evidence  of  the  hold- 
er's title  to  a  given  share  in  the  prop- 
erty and  franchises  of  the  corporation 
of  which  he  is  a  member." 

2  New  York  &  N.  H.  R.  R.  Co.  v. 
Schuyler,  34  N.  Y.  30,  and  see  Bridge- 
port Bank  V.  N.  Y.  &  N.  II.  R.  R.  Co., 
30  Conn.  231;  Fatman  v.  Lobach,  1 
Dner  (N.  Y.),  354;  Leavitt  v.  Fisher, 
4  lb.  1;  Hall  v.  Rose  Hill  &  Evanston 
Road  Co.,  70  111.  673;  Bank  of  Ky.  v. 
Schuylkill  Bank,  1  Pars.  (Pa.)  180; 
Willis  V.  Fry,  13  Phila.  (Pa.)  33; 
^'.  C.  G  Weekly  Notes  of  Cases,  461; 
In  re  Bahia  &  San  Francisco  Ry.  Co., 
L.  K.  3  Q.  B.  584. 

355 


§§  462,  463.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

fraud  is  not  conclusive  against  such  hond  fide  holder.  For  though 
a  certificate  of  stock  is  not  a  negotiable  instrument,  it  is  a  written 
declaration  that  the  holder  has  a  share  in  the  capital  of  the  cor- 
poration, and  if  he  has  been  misled  by  such  declaration,  the 
corporation  that  has  made  the  statement  and  not  he  who  has 
parted  with  his  money  relying  upon  its  truth,  should  bear  the 
loss.^ 

462.  A  usage  of  brokers  or  bankers  to  treat  a  certificate 
of  stock  as  a  negotiable  instrument  is  bad,  and  cannot  be 
shown.  Even  a  usage  to  issue  powers  of  attorney  for  the  trans- 
fer of  stock,  with  the  name  of  the  transferee  left  blank,  has  been 
declared  a  vicious  usage,  which  no  considerations  of  convenience 
are  sufficient  to  justify .^  But  the  validity  of  such  powers  is  well 
established.^ 

463.  There  are,  however,  some  authorities  which  assimi- 
late certificates  of  stock  very  closely  to  negotiable  instru- 
ments, and  give  a  hond  fide  holder  for  value  very  much  the  same 
rights  that  such  a  holder  of  negotiable  paper,  taking  it  before 
maturity,  has.  Thus,  in  a  recent  case,  the  Court  of  Errors  and 
Appeals  of  New  Jersey  say :  "  By  commercial  usage,  as  univers- 
ally acknowledged  by  the  business  community  as  the  law  of 
negotiable  paper,  and  sanctioned  by  repeated  adjudications  in 
our  courts,  as  well  as  in  those  of  other  states,  a  certificate  of 
stock,  accompanied  by  an  irrevocable  power  of  attorney,  either 
filled  up  or  in  blank,  is,  in  the  hands  of  a  third  party,  presump- 
tive evidence  of  ownership  in  the  holder.  And  where  the  party 
in  whose  hands  the  certificate  is  found  is  a  holder  for  value,  with- 
out notice  of  any  intervening  equity.  Ins  title  cannot  be  im- 
peached. The  holder  of  the  certificate  may  fill  up  the  letter  of 
attorney,  execute  the  power,  and  thus  obtain  the  legal  title  to 
the  stock.  And  such  a  power  is  not  limited  to  the  person  to 
whom  it  was  first  delivered,  but  inures  to  each  hond  fide  holder 
into  whose  hands  the  certificate  and  power  may   pass.     Under 

^  That  certificate  of  stocks  in  a  cor-  Siierwood  v.  Meadow  Valley  Mining 

poration  are  not  negotiable  securities  Co.,  50   Cal.  412;  Winter  r.  Belmont 

in  a  commercial  sense,  see  Biddle  v.  Mining  Co.,  53  Cal.  428,  432. 

Bayard,  13  Pa.  St.  150,  152;  Burton  y.  ^  Denny  v.    Lyon,    38  Pa.    St.   98, 

Peterson,  35  Leg.  Int.  144.     Se3  also  per  Woodward,  J,;   AuU  v.   Colket, 

Atkins  V.   Gamble,  42    Cal.  86,   99;  2  Weekly  Notes  Cas.  322. 

356  "  §  165. 


HIS   RIGHTS   ACQUIRED   IN    GOOD   FAITH.  [§  464. 

these  well-recognized  principles  large  amounts  of  property  daily 
pass  from  hand  to  hand  ;  are  sold  and  resold,  or  hypothecated 
for  loans  without  an  actual  transfer  on  the  books  of  the  corpora- 
tion, and  without  other  evidence  of  ownership  than  the  possession 
by  the  holder  of  the  certificate  and  power  of  attorney."  ^ 

Public  securities  and  ordinary  money  bonds  of  corporations, 
payable  to  bearer,  have  all  the  ordinary  characteristics  of  nego- 
tiable paper,  and,  therefore,  are  not  subject,  in  the  hands  of  a 
holder  for  value  and  in  good  faith  before  maturity,  to  equities 
existing  against  any  prior  holder.^   />:-V/    u  9  CuU^  .  i  "^  c  . 

464.  Certificates  of  stock  not  being  negotiable  instru- 
ments, the  title  to  them  is  not  changed  by  an  involuntary 
transfer  by  the  owner,  as  in  the  case  of  loss  or  theft,  or  the  put- 
ting of  them  into  circulation  through  forgery  o'r  fraud.^  When 
a  negotiable  instrument  is  lost  or  stolen,  or  put  into  circulation 
without  the  knowledge  or  consent  of  the  owner,  a  bond  fide  pur- 
chaser for  value,  without  notice,  acquires  a  valid  title  to  it.  But 
title  to  a  certificate  of  stock  can  be  acquired  only  through  the 
voluntary/  act  of  the  person  entitled  to  dispose  of  the  property. 
A  certificate  of  stock  indorsed  in  blank  by  the  owner  is  in  a 
condition  to  be  passed  from  hand  to  hand,  like  any  personal 
chattel.  But  if  it  was  stolen  from  the  owner,  or  lost  by  him, 
neither  the  thief  nor  finder,  nor  any  subsequent  holder,  can 
convey  any  title  by  a  transfer  of  it  to  an  innocent  purchaser  for 
value. 

Thus,  where  the  owner  of  shares  in  a  railway  company  in- 
structed a  broker  to  sell  certain  shares,  and  the  broker  obtained 
from  him  transfers  in  which  blanks  were  left  for  the  name  of  the 
purchaser,  and  for  the  number  of  the  shares  to  be  transferred, 
and  the  blanks  were  fraudulently  filled  up  by  the  broker,  with 
shares  not  intended  to  be  transferred,  the  certificates  having  been 

1  Prall  V.  Tilr,  28  N.  J.  Eq.  479,  per  Canal  &  Banking  Co.  v.  Fisher,  9  lb. 
Grppti,  J. ;  S.  r.  27  Tb.  893  ;    and  see     667. 

Mount  Holly  Turnpike  Co.  v.  Ferree,  ^  Davis  u.  Bank  of  Ennjlanrl,  2  Binsj. 

17   lb.    117;    Jiroadway  Bank  v.  Mc-  393;  Pratt  u.  Taunton  Copper  Manuf, 

Elratb,  13  Tb.  24;    Leavitt  v.  Fisher,  Co.  123  Mass.   110;  Machinists'  Nat. 

4  Duer  (N.  Y.),  1.  Bank  v.  Field,  126  Mass.  34.5  ;   Bcrcich 

2  Jones  on  Railroad  Securities,  §§  v.  IMarye,  9  Nev.  312;  Aull  v.  Colket, 
197-210;    Morris   Canal    &    Bankinfr  2  Weekly  Notes  Cas.  322. 

Co.  17.  Lewis,  12  N.  J.  Eq.  323;  Morris 

357 


§  465.]      RIGHTS  AND  LIABILITIES   OF  A   PLEDGEE   OF   STOCK. 

fraudulently  obtained  by  the  broker,  and  the  shares  sold  to  bond 
fide  purchasers,  it  was  held  that  the  transfer  of  these  shares  was 
void,  and  that  the  original  owner  was  entitled  to  have  the  shares 
delivered  up,  and  their  registration  in  the  name  of  the  purchaser 
rescinded.^ 

Again,  an  owner  of  shares  in  two  companies,  wishing  to  sell 
those  in  one  company,  was  induced  b}'  his  broker  to  execute  a 
blank  transfer,  which  the  broker  fraudulently  filled  with  the 
numbers  and  descriptions  of  the  shares  in  the  other  company, 
which  the  owner  did  not  intend  to  transfer ;  and  the  broker 
having  forged  the  attestations  of  the  transfers,  and  stolen  the 
certificates  of  the  latter  shares  from  a  box  deposited  in  a  bank 
for  safe  keeping,  pledged  them  for  his  own  benefit.  It  was  held 
in  the  Exchequer  Chamber  that  the  transfer  was  void,  and  that 
there  was  no  such  negligence  on  the  part  of  the  owner  as  estop- 
ped him  from  insisting  that  the  property  in  the  shares  did  not 
pass  under  the  transfer.^ 

465.  Whether  it  is  negligence  in  the  owner  of  shares  to 
execute  a  transfer  in  blank  as  to  the  transferee,  and  the 
description  of  the  shares,  such  that  he  is  estopped  from  dis- 
puting the  genuineness  of  the  transfer,  is  a  question  that  has 
been  much  discussed.  The  best  and  most  authoritative  state- 
ment of  the  law  upon  this  subject  is  by  Chief  Justice  Cockburn, 
in  the  Exchequer  Chamber.^  "  I  am  of  opinion,"  he  said,  •'  that 
negligence  alone,  although  it  may  have  afforded  an  opportunity 
for  the  perpetration  of  a  forgery,  by  means  of  which  another 
party  has  been  damnified,  is  not  of  itself  a  ground  of  estoppel. 
The  rule  relating  to  negotiable  instruments  stands  on  peculiar 
grounds.  The  law  relating  to  these  instruments  is  part  of  the 
law  merchant,  which,  in  order  that  the  negotiability  of  such  in- 
struments, which  is  of  the  very  essence  of  their  commercial 
utility,  shall  not  be   impaired,  establishes    that  if   a   man  once 

1  Tayler?;.  Great  Indian  Peninsular  Court  of  Common  Pleas,  7  C.  B.  N.  S. 
R'y  Co.  4  De  G.  &  J.  559  ;  S.  C.  28  400,  where  also  that  court  was  equally 
L.  J.  N.  S.  Ch.  285.  divided. 

2  Swan  V.  North  British  Australasian  ^  Swan  v.  North  British  Australasian 
Co.  2  Hurl.  &  Colt.  1 75,  on  appeal  from  Co.  2  Hurl.  &  Colt.  1 75;  and  see  Denny 
Court  of  Exchequer,  7  H.  &  N.  603,  v.  Lyon,  38  Pa.  St.  98;  Biddle  v.  Bay- 
where  the  court  was  equally  divided  ;  ard,  13  Pa.  St.  150  ;  Pennsylvania  R. 
the  case  first  having  been  before  the  R.  Co.'s  Appeal,  86  Pa.  St.  80. 

358 


HIS   RIGHTS   ACQUIRED   IN   GOOD   FAITH.  [§  466. 

puts  his  name  to  such  an  instrument  he  shall  be  hable  to  a  bond 
fide  owner  without  notice,  in  respect  of  what  may  be  added  to 
give  effect  or  negotiability  to  the  instrument,  notwithstanding 
this  may  be  done  in  the  absence  of  authority,  or  even  for  the 
purpose  of  fraud."  But  the  doctrine  of  estoppel  by  which  a 
genuine  signature  will  make  good  a  negotiable  instrument 
fraudulently  written  above  it,  cannot  be  applied  to  make  good 
other  instruments  executed  in  blank,  and  used  for  a  purpose 
other  than  that  intended  by  the  maker.  Moreover,  negligence, 
to  operate  as  an  estoppel  in  any  case,  must  be  the  proximate 
cause  of  the  loss. 

466.  One  taking,  in  good  faith,  a  certificate  of  stock  from 
the  apparent  owner  may  acquire  title  as  against  the  true  owner, 
although  the  certificate  is  not  in  any  true  sense  a  negotiable  in- 
strument, and  does  not  even  partake  of  the  character  of  such  an 
instrument.  The  rights  of  a  bond  fide  holder  in  such  case  rest 
upon  another  principle  ;  namely,  that  one  who  has  conferred 
upon  another  by  a  written  ti'ansfer  all  the  indicia  of  ownership 
of  property  is  estopped  to  assert  title  to  it  as  against  a  third  per- 
son who  has  in  good  faith  purchased  it  for  value  from  the  ap- 
parent owner.i     This   forms  an   exception   to  the  rule  that  a 

1  Pickering  v.  Busk,  15  East,  38,  43;  390,  Trunkey,  J.,  delivering  the  opin- 

Rumball  v.  ISIetropolitan  Bank,  2  Q.  ion  of  the  court,  said  :  "  The  rights  of 

B.  D.  194  ;  Moore  v.  Miller,  6  Lans.  a  bona  fide  holder,  as  against  the  true 

(N.  Y.)  396;  Moore  v.  Metropolitan  owner  of  the  stock  to  whom  the  appar- 

Nat.  Bank.  55  N.  Y.  41  ;  McNeil  v.  ent  owner  of  the  stock  has  either  sold 

Tenth   Nat.   Bank,    46    N.   Y.  325  ;  or  pledged,  do  not  depend  on  a  ne- 

Wood's  Appeal,  92  Pa.  St.  379;  Bur-  gotiable  character  in  the  certificates, 

tons'  Appeal,  93  Pa.  St.  214;  Moodie  v.  but  rest  on  another  principle;  'namely, 

Seventh  Nat.  Bank,  33  Leg.  Int.  400 ;  that  one  who  has  conferred  upon  an- 

State    Bank   v.    Cox,  11    Rich.  S.  C.  other  by  a  written  transfer  all  the  m- 

Eq.  344;  Eraser  u.  Charleston,  11  S.  C.  dlcia    of    ownership  of    property,    is 

486;    Pennsylvania   R.   R.  Co.'s   Ap-  estopped  to  assert  title  to  it  as  against 

peal,  86  Pa.  St.  80 ;  Strange  v.  II.  &  a  third  person  who  has  in  good  faith 

T.  C.  R.  R.  Co.  53  Tex.  162;  Otis  r.  purchased  it  for  value  from  the  ap- 

Gardner   (111.    1883),    15    Rep.    332  ;  parent   owner.'     As    a    general    rule, 

Dovey's  Appeal,  97  Pa.  St.  153;  West  the  vendor  or  pledgor  can  convey  no 

Branch  &   Susquehanna  Canal   Co.'s  greater   right   or   title    than    he   has. 

Appeal,   81    a   Pa.    St.    19;    Gass   v.  Simply  intrusting  the  possession  of  a 

Hampton,    16    Nev.    185  ;    Stone    v.  chattel    to   another   as    a    depositary, 

Marye,  14  Nev.  362  ;  Walker  v.  De-  pledgee,  or  other  bailee,  is  insufficient 

troit  Transit  Ry.  Co.  4  7  Mich.  338.  to  prevent  tlie  real  owner  reclaiming 

In  Wood's  Appeal,  92  Pa.  St.  379,  his  property  in  case  of  an  unauthor- 

359 


§  466.]      RIGHTS  AND  LIABILITIES   OF  A  PLEDGEE   OF   STOCK. 

purchaser  of  personal  property  other  than  negotiable  commercial 
paper  obtains  no  better  title  than  his  vendor  had.  This  estoppel 
applies  whenever  the  real  owner  of  property  has  vested  another 
with  the  apparent  absolute  title  to  it,  by  an  instrument  in  writ- 
ing, upon  the  faith  of  which  a  third  person  has  dealt,  whether 
the  property  be  a  specific  chattel  or  a  chose  in  action.  It  is  of 
frequent  application  to  cases  of  pledges  of  stock.  "  The  right- 
ful owner  may  be  estopped  by  his  own  acts  from  asserting  his 
title,  as  he  may  be  in  respect  to  other  property  of  a  like  char- 
acter. If  he  has  invested  another  with  the  usual  evidence  of 
title  or  an  apparent  authority  to  dispose  of  it,  he  will  not  be  al- 
lowed to  make  claim  against  an  innocent  purchaser  dealing  upon 
the  faith  of  such  apparent  ownership,  and  jus  disponendi.'^  ^ 

Thus,  if  a  shareholder  in  a  corporation  delivers  as  collateral 
security  his  certificate  of  shares,  with  a  blank  assignment  and 
power  executed  by  him,  he  passes  to  the  pledgor  all  the  external 
indicia  of  title  to  the  stock,  with  a  power  of  disposition  over  it 
apparently  unlimited.  One  purchasing  such  shares  in  good  faith 
from  the  pledgee  may  hold  them  against  the  pledgor ;  and  if  the 


ized  disposition  of  it  by  the  person  as 
intrusted.  The  mere  possession  of 
chattels  without  evidence  of  property 
or  authority  to  sell  from  the  owner, 
will  not  enable  the  possessor  to  give 
good  title.  But  if  the  owner  intrusts 
to  another  the  possession  of  property, 
and  also  written  evidence  of  title  and 
power  of  disposition  over  it,  as  re- 
spects innocent  third  persons,  he  is 
deemed  as  intending  it  shall  be  dis- 
posed of  at  the  pleasure  of  the  depos- 
itary. If  there  be  conditions  on  which 
this  apparent  right  of  control  is  to  be 
exercised,  not  expressed  on  the  face  of 
the  instrument,  the  case,  in  principle, 
is  like  that  of  an  agent  who  receives 
secret  instructions  qualifying  or  re- 
stricting an  apparent  absolute  power. 
If  the  owner  of  the  stock  voluntarily 
give  certificates  with  blank  assignment 
and  power  to  make  transfers  to  his 
brokers,  who  betray  the  confidence 
reposed  in  them,  such  owner  must 
suffer  the  loss   rather  than   innocent 

360 


strangers  whose  money  the  brokers 
were  thereby  enabled  to  obtain.  The 
principle  applies  to  pledges  of  stock 
and  one  who  purchases  from  the 
pledgee  may  hold  against  the  pledgor. 
And  if  the  pledgee  pledge  it  to  secure 
payment  of  his  own  debt,  the  second 
pledgee  may  hold  it  as  security  till  his 
debt  be  paid.  '  A  person  loaning 
money  on  such  certificate  and  power, 
has  a  right  to  believe  that  the  bor- 
rower from  whom  he  receives  them 
has  an  absolute  right  to  pledge  the 
stock.'  By  commercial  usage  a  cer- 
tificate of  stock,  accompanied  by  an 
irrevocable  power  of  attorney,  either 
filled  up  or  in  blank,  is,  in  the  hands 
of  a  third  party,  presumptive  evidence 
of  ownership  in  the  holder.  And 
where  the  party  in  whose  hands  the 
certificate  is  found  is  a  holder  for 
value,  without  notice  of  any  interven- 
ing equity,  his  title  cannot  be  im- 
peached." 

1  Weaver  v.  Barden,  49  N.  Y.  286, 
288;  per  Allen,  J. 


HIS  RIGHTS   ACQUIRED  IN   GOOD   FAITH.  [§  466. 

pledgee  himself  pledges  such  shares  as  collateral  security  for  a 
debt  of  his  own,  the  second  pledgee  is  entitled  to  hold  them  as 
security  for  the  full  amount  of  the  debt  for  which  they  were 
pledged  to  him.^  If,  for  instance,  an  owner  of  stock  allow  certifi- 
cates to  be  taken  in  the  name  of  his  broker,  who  is  carrying  the 
stock  upon  a  margin,  without  anything  on  the  face  of  the  cer- 
tificates to  show  his  ownership,  the  holder  of  the  certificate  can 
sell  or  pledge  the  stock  as  his  own,  and  give  a  title  which  the 
owner  cannot  interfere  with.^  And  so,  if  an  owner  of  shares 
having  transferred  them  in  pledge  by  his  indorsement,  furnishes 
funds  to  another  to  pay  the  debt  and  take  up  the  certificates,  and 
after  this  has  been  done  allows  the  certificates  to  remain  thus  in- 
dorsed in  the  hands  of  his  agent,  who  afterwards  pledges  them 
for  his  own  debt  to  a  person  who  makes  advances  thereon  in  good 
faith,  the  latter  can  hold  them  against  the  true  owner.^  A  per- 
son loaning  money  upon  such  a  certificate  and  power  has  the  right 
to  believe  that  the  borrower  from  whom  he  receives  them  has  an 
absolute  right  to  pledge  the  stock.*  In  like  manner  if  an  owner 
of  stock  loans  his  certificate  accompanied  with  a  blank  power  of 
attorney  to  transfer  the  same  with  a  broker  or  other  bailee,  and 
the  latter  pledges  it  for  his  own  debt  to  one  who  has  no  knowl- 
edge of  the  fraud  of  the  broker,  the  owner  is  estopped  from  set- 

1  McNeil  V.  Tenth  Nat.  Bank,  46  15  lb.  389.  Parker,  C.  J.,  in  the  earlier 
N.  Y.  325;  and  see  Bank  v.  Lanier,  decision  said :  "  If  Russell  (the  agent) 
11  AVall.  369;  Lowry  v.  Bank  of  Bal-  abused  bis  trust  by  pledging  the  certifi- 
timore,  Taney,  310;  Prall  v.  Tilt,  27  cates,  instead  of  holding  them  in  trust 
N.  J.  Eq.  393;  S.  C.  28  lb.  479;  Hoi-  for  Jarvis  (the  owner)  this  is  an  affair 
brook  V.  N.  J.  Zinc  Co.  57  N.  Y.  616;  to  be  settled  between  the  representa- 
Willis  V.  Phila.  &  Darby  R.  R.  Co.  6  tives  of  those  parties.  The  certificates 
AVeekly  Notes,  Cas.  461;  Mount  Hoi-  being  lawfully  in  the  hands  of  Rus- 
ly  Turnpike  Co.  v.  Ferree,  17  N.  J.  sell,  with  the  name  of  Jarvis  on  the 
Eq.  117;  Moodie  v.  Seventh  Nat.  back,  without  any  restriction  of  the 
Bank,  33  Leg.  Int.  400  ;  Stone  v.  use  of  that  name  ;  and  there  being 
Marye,  14  Nev.  362  ;  S.  C.  9  Rep.  a  vote  of  the  company  in  which  Jar- 
448;  Gass  v.  Hampton,  16  Nev.  185;  vis  concurred,  that  they  should  be 
Bridgeport  Bank  v.  N.  Y.  &  N.  H.  transferable  in  that  manner,  it  is 
R.  R.  Co.  30  Conn.  231;  Cushman  v.  enough  for  the  defendant  that  he  re- 
Thayer  Manuf.  Co.  76  N.  Y.  365;  Cher-  ceived  them  as  collateral  security  for 
ry  V.  Frost,  7  Lea  (Tenn.),  1 ;  Brews-  a  debt,  and  that  the  debt  has  not  been 
ter  r.  Sime,  42  Cal.  139,  and  see  Cow-  discharged." 

drey  v.  Vandenburgh,  101   U.  S.  572,  And  see  Savage  v.  Stnythe,  48  Ga. 

575.  562;  Dovey's  Appeal,  97  Pa.  St.  153. 

2  Thompson  v.  Toland,  48  Cal.  99.  *  Fatman  r.Lobach,  1  Ducr  (N.  Y.), 
'  Jarvis  v.    Rogers,   13  Mass.   105;  354;  Leavitt  v.  Fisher,  4  lb.  1. 

861 


§  467.]      RIGHTS   AND   LIABILITIES   OF  A  PLEDGEE   OF  «TOCK. 

ting   up   his    own    title   as  against  the  advances  made  by  the 
pledgee.^ 

It  has  been  insisted  that  to  apply  the  foregoing  rule  to  non- 
negotiable  choses  in  action  in  effect  makes  them  negotiable. 
"  Not  at  all.  No  one  pretends  but  that  the  purchaser  will  take 
the  former,  subject  to  all  defences,  valid  as  to  the  original  parties, 
nor  that  the  mere  possession  is  any  more  evidence  of  title  in  the 
possessor  than  is  that  of  a  horse.  In  both  respects,  the  difference 
between  these  and  negotiable  instruments  is  vital,  and  not  at  all 
affected  by  the  application  of  the  same  rule  as  to  chattels."  ^ 

467.  This  rule  is  undoubtedly  a  sound  one,  and  forms  the 
basis  upon  which  the  rights  of  pledgees  of  certificates  of  stock  in 
cases  such  as  have  been  given  above  must  rest.  It  is  true  that  in 
many  of  the  cases  the  maxim  applies,  that  a  loss,  as  between  two 
innocent  parties,  resulting  from  the  fraud  of  a  third  person,  should 
be  cast  upon  the  party  who  by  employing  and  trusting  such  per- 
son enabled  him  to  commit  it.^  But  this  may  generally  be  re- 
garded as  a  secondary  and  additional  rule  of  law,  by  which,  in 
such  case,  a  bond  fide  pledgee  of  stock  may  sustain  his  title. 
There  are  many  cases  of  betrayal  of  trusts  by  agents  to  which 
both  of  these  rules  are  applicable.     "  The  principle  upon  which 


^  Burton's  Appeal,  93  Pa.  St.  214;  sell  and  transfer  the  same,  to  an  agent 
Moodie  v.  Seventh  Nat.  Bank,  3  for  safe  keeping,  and  the  agent  fraud- 
Weekly  Notes  Cas.  118  ;  AuU  v.  Colk-  ulently  pledged  them  for  a  loan  for  his 
et,  2  lb.  322  ;  Zulick  v.  Markham,  6  own  use.  Although  the  power  of  at- 
Daly  (N.  Y.),  129  ;  Dickinson  v.  Dud-  torney  was  dated  thirteen  years  before, 
ey,  17  Hun  (N.  Y.),  569;  Strange  y.  the  transfer  upon  the  books  of  the 
H.  &  T.  C.  R.  R.  Co.  53  Tex.  162;  company  was  obtained  by  the  pledgee 
Cherry  v.  Frost,  7  Lea  (Tenn.),  1 ;  Gass  of  the  stock,  it  was  held  that  the  cor- 
V.  Hampton,  16  Nev.  185;  Walker  v.  poration  was  justified  in  making  the 
Detroit  Transit  Ry.  Co.  47  Mich,  transfer,  without  inquiry  as  to  the 
338.  validity  of  the  power.     Judge   Shars- 

2  Moore  v.  IVIetropolitan  Nat.  Bank,  wood,  delivering  the  opinion,  said  : 
55  N.  Y.  41,  48,  per  Grover,  J.  "  AVhen  one  of   the  two  parties  who 

3  Fatman  v.  Lobach,  1  Duer  (N.  are  equally  innocent  of  actual  fraud 
Y.),  554,  per  Oakley,  C.  J.;  White  i'.  must  lose,  it  is  the  suggestion  of  cora- 
Springfield  Bank,  3  Sandf.  (N.  Y.)  mon  sense  as  well  as  equity  that  the 
222,  229;  Pennsylvania  Railroad  Co.'s  one  whose  misplaced  confidence  in  an 
Appeal,  86  Pa.  St.  80  ;  5.  C  5  Weekly  agent  or  attorney  has  been  the  cause 
Notes,  Cas.  22.  In  this  case,  the  owner  of  the  loss,  shall  not  throw  it  on  the 
of  stock  had  intrusted  the  certificates,  other." 

accompanied  by  powers  of  attorney  to 

362 


HIS  RIGHTS   ACQUIRED  IN   GOOD   FAITH.  [§  467. 

these  transactions  have  been,  and  ought  to  be  established,  is  this  : 
that  when  the  owner  of  stock,  in  the  ordinary  course  of  business 
and  in  the  method  common  to  all  mercantile  communities,  by  his 
own  act  has  armed  another,  his  agent  or  attorney,  with  power  to 
act  for  him,  and  when  this  agent  or  attorney  deals  with  innocent 
third  parties,  who,  without  notice  or  other  intervening  equity 
advance  money  upon  the  faith  of  the  evidences  of  title  in  the 
possession  of  the  attorney  or  agent,  the  owner  takes  every  risk, 
and  is  bound  by  the  act  of  the  person  whom  he  sees  fit  to  hold 
out  to  the  world  as  his  attorney  or  agent.^ 

It  is  to  be  observed  that  in  the  cases  to  which  the  principle  of 
apparent  ownership  has  been  applied,  the  apparent  owner  was, 
in  his  dealings  with  persons  relying  in  good  faith  upon  the  ap- 
pearances, the  real  owner,  and  sold  or  pledged  the  stock,  or  dealt 
with  it  as  the  real  owner.  Such  cases  are  to  be  carefully  distin- 
guished from  a  case  in  which  a  person  deals  with  an  agent  of  the 
owner  of  stock  with  limited  authority,  knowing  him  to  be  only 
an  agent,  and  not  the  real  owner,  and  knowing,  or  having  reason 
to  know,  that  his  authority  is  limited.  Thus,  an  owner  of  stock 
delivered  it,  without  indorsement  or  power  to  transfer,  as  security 
for  a  loan  of  $3,000.  Afterwards  the  lender  applied  to  a  bank 
for  a  loan  of  $8,000  upon  the  certificate,  stating  that  he  wanted 
it  for  a  client ,  and  the  agent  of  the  bank  agreed  to  make  the 
loan  upon  receiving  a  power  of  attorney  attached  to  the  certifi- 
cate. The  lender  thereupon,  by  representing  to  the  owner  that 
he  ought  to  have  a  transfer,  induced  him  to  sign  a  printed  blank 
transfer  and  irrevocable  power  of  attorney,  and  obtained  the 
money  thei-eon  from  the  bank ;  and  subsequently  he  obtained 
from  the  bank  a  further  loan  upon  the  stock  for  his  client,  as  he 
represented.  He  had,  in  fact,  no  authority  from  the  owner  to 
pledge  the  stock.  ■  It  was  held  that,  inasmuch  as  the  holder  of 
the  certificate  did  not  claim  to  be  the  owner  of  the  stock,  but 
only  an  agent  of  the  owner,  and  there  was  nothing  in  the  case  to 
sliow  that  he  was  clothed  with  apparent  authority  to  make  the 
loan,  beyond  his  own  assertion,  the  owner  was  not  estopped  from 
asserting  his  title  to  the  stock,  subject,  perhaps,  to  a  lien  for  the 

^  Burton  v.  Peterson,  35  Leg.  Int.  Weekly  Notes,    Cas.  118;    .S'.   C.  33 

144,    per    Ludlow,   J.,    and    see   also  Leg,  Int.  400;   Jarvis  v.   Rogers,   13 

Persch   V.  Quiggle,  57    Pa.  St.  247  ;  Mass.  105  ;  S.  C.  15  Mass.  389,  393. 
Moodie    v.    Seventli    Nat.    Bank,     3 

363 


§§  468,  469.]    RIGHTS  AND   LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

original  loan  of  $3,000  ;  that  while  the  transfer  or  power  might 
have  given  the  holder  an  apparent  ownership  of  the  stock  in  case 
he  had  claimed  to  be  the  real  owner,  or  it  might  have  given  him 
authority  to  go  into  the  market  as  the  agent  of  the  owner,  and 
as  such  to  sell  the  stock  and  give  good  title,  it  did  not  hold  him 
out  as  authorized  to  make  a  loan  and  pledge  the  stock  ;  or,  at 
most,  it  only  held  him  out  as  authorized  to  pledge  the  stock  for 
an  authorized  loan.^ 

468.  The  rule  is  the  same  whether  the  delivery  of  a  cer- 
tificate with  a  power  of  transfer  be  regarded  as  passing  the 
legal  title  or  merely  an  equitable  one.  If  it  passes  the  legal 
title,  then  the  owner  having  clothed  his  pledgee  with  the  whole 
title,  and  consequently  an  unlimited  power  of  disposition,  can- 
not set  up  an  unknown  equity  against  a  title  acquired  by  a  sub- 
sequent assignee  in  good  faith  for  a  valuable  consideration,  and 
in  the  due  course  of  trade.  If  such  a  transfer  passes  only  an 
equitable  title,  still  the  owner  having  intrvisted  his  pledgee  not 
only  with  the  possession  of  the  certificate  of  stock,  but  also  with 
written  evidence  over  his  own  signature  of  title  thereto,  and  of 
unconditional  power  of  disposition  over  it,  he  is  estopped  to  dis- 
pute the  title  which  he  has  apparently  conferred,  and  set  up  a 
prior  equity  in  himself.^ 

469.  Precedent  debt.  —  But  to  entitle  a  purchaser  to  protec- 
tion against  the  legal  title  or  a  prior  equity,  upon  tlie  ground 
that  he  has  dealt  with  the  person  having  the  apparent  ownership 
or  right  of  disposition,  he  must  appear  to  be  a  purchaser  for 
value.  What  constitutes  a  valuable  consideration  is  generally  a 
question  that  is  easily  answered  ;  for  it  is  everywhere  agreed 
that  a  payment  of  purchase  money  or  any  part  of  it,  or  the  part- 
ing with  something  of  value  upon  the  faith  of  tlie  purchase,  or  a 
loan  made  at  the  time,  or  an  agreement  to  extend  the  time  of 
payment  of  an  existing  debt  constitutes  a  valuable  consideration.^ 
It  is  also  the  prevailing  rule  that  a  transfer  of  property  in  pay- 
ment or  security  of  a  preexisting  debt  is  a  sufficient  considera- 
tion.    But  in  New  York  and  other  states  the   rule   is  applied 

1  Merchants'  Bank   of    Canada    v.  ^  Cherry  v.  Froft,  7  Lea  (Tenn.), 

Livingston,   74  N.    Y.   223;    S.  C.    7  1,  10,  per  Cooper,  J. 

N.  Y.  Weekly  Dig.  249.  »  Cherry  v.  Frost,  supra  ;  S.  C.  21 

364  Am.  Law  Reg.  (N.  S.)  57. 


HIS   RIGHTS   ACQUIRED   IN   GOOD   FAITH.       [§§  470,  471. 

to  negotiable  paper,  that  a  person  taking  it  in  payment  or  as 
security  for  an  antecedent  debt  without  giving  further  credit, 
surrendering  any  security  or  incurring  any  further  obligation,  is 
not  a  bond  fide  holder  for  value,  as  against  third  persons  having 
prior  equities  ;  and  the  same  rule  is  also,  for  stronger  pei'sons, 
applied  to  transfers  of  stock ;  and  it  is  accordingly  held  that  the 
mere  existence  of  a  precedent  debt  will  not  support  a  transfer  of 
stock  as  against  the  rightful -owner,  or  as  against  the  equities  of 
others,  altiiough  the  assignor  be  clothed  with  the  apparent  owner- 
ship or  right  of  disposition.^  If  the  stock  be  transferred  partly 
in  consideration  of  a  precedent  debt  and  partly  for  a  new  consid- 
eration paid  at  the  time,  the  taker  will  be  regarded  as  a  holder 
for  value  so  far  as  the  assignment  was  made  for  a  consideration 
paid  at  the  time,  but  not  a  holder  for  value  for  the  amount  of  the 
precedent  debt.^ 

470.  Collaterals  taken  in  exchange  for  other  collaterals 
are  taken  for  value  to  the  extent  of  the  consideration  given  in 
exchange.  This  is  the  rule  where  collaterals  for  a  preexisting 
debt  are  not  regarded  as  taken  for  value.  When  old  collaterals 
are  surrendered  and  others  taken  in  their  place,  the  creditor  in 
fact  pays  a  consideration  for  the  new  securities,  and  the  extent  of 
that  consideration  is  the  value  of  the  securities  surrendered.^ 

471.  Under  the  old  usury  laws,  which  happily  have  now 
mostly  disappeared,  a  person  who  took  a  pledge  upon  a  usurious 
contract  was  not  considered  as  a  bond  fide  holder,  in  the  usual 
course  of  business.^  "A  note  or  stock  taken  to  secure  a  loan  of 
money  which  is  illegal  and  forbidden  at  law,  is  not  taken  in  the 
ordinary  course  of  business,  and  such  a  transaction  does  not  give 
the  holder  a  superior  right  to  that  of  a  real  owner  who  has  been 
defrauded  of  his  property  by  the  person  who  passed  it  away  on 
the  usurious  contract.^     Therefore  if  a  re-hypothecation  of  stock 

1  Weaver  v.  Banlen,  49  N.  Y.  286;  »  Cherry  j;.  Frost,  7  Lea  (Tenn.),  1; 

Ashtoii's  Appeal,  73  Pa.  St.  153,  162;  S.  C.  21  Am.  L.  Reg.  (N.  S.)  57. 

Moodie  D.  Seventh  Nat.  Bank,  33  Leg.  *  llamsdell    v.   Morgan,   16    Wend. 

Int.   400;    Dovey's   App.   97  Pa.   St.  (N.  Y.),  574;  Dean  v.  Howell,  Hill  & 

153.  Den.  (N.  Y.)  39;  Sands  v.  Church,  6 

*  Weaver  v.  Barden,  supra;  Gould  N.  Y.  347. 

V.  Farmers'  Loan  &  Trust  Co.  23  Hun  «  Felt  t;.   Heye,    23   How.  (N.   Y.) 

(N.  Y.),  322.  Pr.  359,  per  Ingraham,  C.  J. 

3G5 


§  472.]      RIGHTS  AND   LIABILITIES   OF   A   PLEDGEE   OF   STOCK. 

be  made  under  a  contract  void  for  usury,  the  pledgee  will  not  be 
considered  a  bond  fide  purchaser  without  notice,  and  he  will 
not  therefore  be  protected  in  the  possession  of  the  stock  as 
against  the  owner,  who  is  entitled  to  recover  it  without  even 
paying  the  original  debt  secured.^ 

472.  Actual  notice.  —  When,  however,  one  dealing  with  the 
apparent  owner  of  stock  has  notice,  actual  or  constructive,  of 
the  rights  of  the  true  owner,  he  can  acquire  no  better  title  than 
the  apparent  owner  can  lawfully  transfer.^  A  judgment  cred- 
itor buying  at  an  execution  sale  stock  already  transferred  by  the 
debtor  by  indorsement  and  delivery  of  the  certificate,  with  notice 
of  such  transfer,  obtains  no  better  title  than  his  debtor  had.^ 

It  would  seem  to  be  upon  this  ground  that  where  the  owner  of 
stock  executed  and  delivered  to  an  agent  a  power  of  attorney  in 
blank,  with  the  understanding  that  it  should  be  used  to  secure  a 
particular  creditor,  whose  name  the  agent  inserted  in  the  power, 
but  erased  after  that  creditor  had  been  satisfied,  and  inserted 
another  name,  it  was  held  that  the  agent's  authority  was  ex- 
hausted by  the  first  transaction,  and  the  principal  was  entitled  to 
a  return  of  the  stock.^  It  was  contended  on  the  one  hand  that 
the  issuing  of  the  power  in  blank  implied  the  intention  of  the 
owner  to  pledge  the  stock  to  any  creditor  who  should  loan  money 
to  the  attorney  authorized  to  make  the  transfer ;  on  the  other 
that  the  filling  up  of  the  blank  in  the  first  instance  argued,  that 
any  subsequent  transferee  knew  that  the  owner  had  issued  the 
power  only  for  the  benefit  of  the  person  whose  name  was  first 
inserted  in  the  power.  Then  the  creditor  replied  that  erasing  the 
first  name  and  inserting  his  own,  made  the  transfer  under  the 
power  legal  and  valid;  and  the  owner  rejoined  that  the  attor- 
ney's power  was  exhausted  when  he  first  filled  the  blank.  "  And 
out  of  this  forensic  game  of  shuttlecock  and  battledore,"  say  the 
court,  "  we  are  expected  to  educe  the  equities  that  shall  deter- 
mine the  title  to  the  stock ;  "  and  they  accordingly  hold  that  the 
owner  having  proved  his  allegation  that  he  transferred  the  stock 
only  to  secure   the  creditor  whose  name  was  first  inserted,  and 

1  Felt  V.  Reye,  23  How.  (N.  Y.)  Pr.  ^  Newberry  it  Detroit  &  Lake  Su- 
359.  perior  Iron  Co.  17  Mich.  141. 

2  Porter  v.  Parks,  49  N.  Y.  564.  ■*  Denny  v.  Lyon,   38   Pa.  St.   98  ; 

and  see  Sitgreaves  v.  Farmers'  &  Me- 
366  cbanics'  Bank,  49  Pa.  St.  359,  365. 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.       [§§  473,  474. 

that  this  creditor  had  been  fully  paid,  he  was  entitled  to  a  re- 
turn of  the  stock. 

473.  The  mere  fact  that  a  certificate  of  stock  re-hypoth- 
ecated by  the  pledgee,  was  in  the  name  of  the  first  pledgor, 
accompanied  with  his  power  of  attorney  to  transfer  it,  is  not  of 
itself  sufficient  to  charge  the  second  pledgee  with  notice  of  the 
first  pledgor's  rights,  or  even  to  charge  him  with  sufficient  knowl- 
edge of  those  rights  to  put  him  upon  inquiry.^  To  pass  the  title 
to  stock,  in  equity  at  least,  it  is  not  necessary  that  it  should  be 
transferred  upon  the  books  of  the  corporation.^  The  pledgee 
may  hold  the  certificate  with  the  power  of  attorney,  and  have  all 
the  rights  he  could  have  from  a  transfer  of  the  stock  upon  the 
books. 

So  if  a  certificate  of  stock  be  assigned  to  one  by  a  transfer  not 
filled  in,  that  is  by  a  transfer  signed  in  blank,  the  holder  of  the 
certificate  may  effectually  pledge  it  in  that  condition,  though  in 
doing  so  he  makes  an  improper  use  of  the  stock.  Equity  will 
not  give  the  assignor  relief  against  a  bond  fide  pledgee  of  the 
certificate,  though  the  assignee  pledges  it  in  that  condition,  with- 
out having  the  stock  first  transferred  to  himself  on  the  books  of 
the  corporation.^ 

III.  His  Rights  when  Dealing  ivith   One    holding  a  Fiduciary 

Relation. 

474.  One  holding  stock  as  •'  trustee  "  has  prima  facie  no 
right  to  pledge  it,  to  secure  his  own  debt  growing  out  of  an  in- 
dependent transaction  ;  and  whoever  takes  it  as  security  for  such 
debt,  without  inquiry,  does  so  at  his  peril.'*  If  a  certificate  of 
stock  issued  in  the  name  of  "  A.  B.  trustee,"  be  pledged  by  him 

1  Felt  V.  Heye,  23  How.  (N.  Y.)  Budd  u.Munroe,  18  Hun  (N.  Y.),  316; 
Tr.  359.  Simons  r.  S.  W.  Railway  Bank,  2  Am. 

2  See  §§  169-171.  L.  Reg.  54G  ;   Ham  v.  Ham,  58  N.  II. 

3  Otis  u.  Gardner  (111.  1883),  15  70.  See  Ashton  v.  Atlantic  Bank,  3 
Rep.  332.  Allen  (Mass.),  217,  for  a  case  decided 

*  Siiaw  V.  Spencer,  100  Mass.  382;  on  its  own  peculiar  facts,  but  still  go- 

Jaudon  v.  Nat.  City  Bank,  8  Blatchf.  ing  too  far,  perliaps,  iu  protecting  the 

430;  Duncan  y.  Jaudon,  15  Wall.  1G5;  lender  from    liability   ari.^iug  from    a 

and  see  Sj)rague  v.  Coclieco  Manufac-  presumption    of    bis    knowledge    that 

turing  Co.  10  Blatchf.    173;  Swan  v.  the   pledge  was  made  in  violation  of 

Produce  Bank,  21  Hun  (N.  Y.),  277;  the  trustee's  duty. 

367 


§  474.]      RIGHTS  AND    LIABILITIES   OF  A   PLEDGEE  OF  STOCK. 

to  secure  his  own  debt,  the  pledgee  is,  by  the  terms  of  the  cer- 
tificate, put  upon  inquiry  as  to  the  character  and  limitations  of 
the  trust.     The  effect  of  the  word  "  trustee  "  is  the  same  as  if  it 
had  been  A.  B.,  trustee  for  C.  D.^     "  Where  one  known  to  be  a 
trustee  is  found  pledging  that  which  is  known  to  be  trust  prop- 
erty, to  secure  a  debt  due  from  a  firm  of  which  he  is  a  member, 
the  act  is  one  primd  facie  unauthorized  and  unlawful,  and  it  is 
the  duty  of  him  who  takes  such  security  to  ascertain  whether  the 
trustee  has  a  right  to  give  it.     The  appropriation  of  corporate 
stock  held  in  trust,  as  collateral  security  for  the  trustee's  own 
debt,  or  a  debt  which  he  owes  jointly  with  others,  is  a  transac- 
tion so  far  beyond  the  ordinary  scope  of  a  trustee's  authority, 
and  out  of  the  common  course  of  business,  as  to  be  in  itself  a 
suspicious  circumstance,  imposing  upon  the  creditor  the  duty  of 
inquiry.     This  would  hardly  be  controverted  in  a  case  where  the 
stock  was  held  by  '  A.  B.,  trustee  for  C.  D.'    But  the  effect  of  the 
woi'd  '  trustee '  alone  is  the  same.    It  means  trustee  for  some  one 
whose  name  is  not  disclosed  ;  and  there  is  no  greater  reason  for  as- 
suming that  a  trustee  is  authorized  to  pledge  for  his  own  debt  the 
property  of  an  unnamed  cestui  que  trust,  than  the  property  of  one 
whose  name  is  known.    In  either  case,  it  is  highly  improbable  that 
the  right  to  do  so  exists.     The  apparent  difference  between  the  two 
springs  from  the  erroneous  assumption  that  the  word  '  trustee  ' 
alone  has  no  meaning  or  legal  effect."  ^     This  case,  and  the  prin- 
ciples therein  announced,  are  approved  by  the  Chancellor  of  New 
Jersey  in  a  recent  case.     There  it  was  held  that  the  fact  that  a 
certificate  of  stock  is  indorsed  to  a  person  as  "  trustee  "  is  suf- 
ficient notice  of  the  existence  of  the  trust,  whatever  that  may  be  ; 
and  that  one  who  loans  money  to  such  person,  on  a  pledge  of 
such  stock,  has  notice  that  the  trustee  is  abusing  his  trust,  and 
applying  the  monej'^  to  his  own  purposes,  when  the  loan  is  appar- 
ently for  the  private  purposes  of   the   borrower,  and    that  fact 
would  be  revealed  by  inquiry .3     "  In  this  case,"  said  the  Chan- 
cellor, "  one    of   two  innocent    parties  must  suffer,  —  the   bank 
(which  made  the  loan)  or  the  cestuis  que  trust;  and  it  is  but  just 
that  the  loss  should  fall  on  the  former,  which  might,  by  the  ex- 

1  Shaw  V.  Spencer,  100  Mass.  382;  ^  Per  Foster,  J.,  in  Shaw  v.  Spencer, 

Sturtevant  v.  J;i([ues,  14  Allen,  (Mass.)  supra. 

623  ;   and  see  Fisher  v.  Brown,   104  «  Gaston  v.  Am.  Exch.  Nat.  Bank, 

Mass.  259.  29  N.  J.  Eq.  98. 

368 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.  [§  474. 

ercise  of  reasonable  care,  have  protected  itself.  In  such  cases 
reasonable  care  is  a  duty.  The  trustee  proposed  to  borrow 
money  on  his  individual  account  for  his  own  use,  and  to  secure 
the  repayment  of  it  by  the  pledge  of  stock  which  on  its  face  bore 
evidence  that  it  was  not  his  own,  but  the  property  of  some  one 
else,  for  whom  he  held  it  in  a  fiduciary  capacity,  and  that  he 
had  no  right  to  pledge  it  for  his  own  debt.  The  bank,  without  a 
question,  even  to  him,  so  far  as  appears,  as  to  his  right  to  pledge 
the  stock,  and  without  any  inquiry  whatever  on  the  subject,  lent 
him  the  money  and  accepted  the  security.  One  hundred  shares 
of  the  stock  still  stood  on  the  books  of  the  company  in  the  name 
of  the  trustee's  immediate  predecessor  in  the  trust.  As  to  all  of 
the  stock,  the  fact  that  it  was  held  in  trust  was  known  to  the 
bank.  It  was  not  misled  by  any  statement  or  representation.  It 
chose  to  assume  that  inquiry  was  unnecessary,  and  to  rely  on 
the  character  of  the  trustee  as  a  guaranty  for  the  lawfulness  of 
the  transaction,  and  the  propriety  of  his  conduct  in  dealing  with 
the  trust  property.  The  loss  should,  as  before  remarked,  in 
equity  fall  on  it  rather  than  on  the  cestuis  que  trust.^' 

There  was  a  similar  case  in  Pennsylvania  of  a  lender  advanc- 
ing his  money  on  certificates  of  stock,  expressed  on  their  face  as 
held  by  the  borrower  in  trust  for  some  other  party,  and  making 
no  effort  either  to  ascertain  who  that  party  was,  or  whether  the 
funds  proposed  to  be  raised  on  the  securities  were  bond  fide  in- 
tended to  be  applied  for  the  purposes  of  the  trust.  "  A  loan 
made  under  such  circumstances,"  say  the  court,^  "  is  at  the  peril 
of  the  lender.  In  Maples  v.  Medlin,^  on  the  soundest  principles 
it  was  ruled,  that  to  make  a  purchaser  of  the  legal  estate  a  trustee 

^  Walsh    V.    Stille,    2    Pars.    (Pa.)  pressed,    would    have    demanded    by 

Eq.  17,  23.     Per  King,  Prest.,  J.:  "  In  what   authority  he   proposed  making 

the   first  place  it  was  manifest,  from  use  of  them,  and  for  what  purpose, 

the  face  of  the  certificates,  that  Stille  consistent   with  his  duty   as   trustee, 

did    not   hold  tiie    stocks    in  his  own  he  intended  to  use  tlie  money  raised 

right,  but  in  a  fiduciary  character  for  from    them.     Nor   would    a   cautious 

some   other  person.      In  the  answer,  lender   have    been    satisfied  with   the 

Bridges  (tlie  lender)  does  not  say  that  mere  say-so  of  the  trustee,     lie  would 

he  ever  made  any  inquiry  of  Stille  on  and  ought  to  have  applied  to  the  cor- 

the    subject,  a  circumstance  in  itself  porations,  in  order,  if  practicable,  to 

suspicious.     One  would   suppose  that  ascertain  from    that   source  who  was 

any   prudent   man,    when    such  secu-  the  true  party  interested  beneficially 

rities  were  oilered    to  him  by  a  party  in  them." 
whose  character  was  so  distinctly  ex-         ^  1  Murphy  (N.  C),  219. 

21  309 


§§  475-477.]     RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

for  the  cestui  que  trust  it  is  not  necessary  that  he  shouM  have 
notice  of  the  particular  cestui  que  trust.  It  is  sufficient  if  he  has 
notice  that  the  person  from  whom  he  purchased  is  a  trustee." 

475.  A  certificate  of  stock  issued  to  "  the  estate  of  "  a  de- 
ceased person  is  notice  to  a  pledgee  that  the  stock  is  affected  by 
a  trust.  If  therefore  in  order  to  carry  out  the  provision  of  a  will 
giving  the  income  of  certain  real  estate  to  the  testator's  wife  for 
life,  by  agreement  of  all  the  parties  interested  they  sell  the  real 
estate,  and  the  executors  invest  the  proceeds  in  certain  stock, 
taking  the  certificate  in  the  manner  indicated,  inasmuch  as  the 
executors  really  hold  the  shares  in  trust,  and  not  in  their  capacity 
of  executors,  one  of  them  cannot  make  an  effectual  pledge  of  the 
shares  to  secure  a  debt  of  his  own,  by  indorsing  the  certificate 
in  his  own  name  as  executor.^ 

476.  One  of  two  trustees  cannot,  without  the  consent  of 
his  co-trustee,  pledge  the  trust  property  ;  and  a  person  taking 
such  a  pledge  with  notice  of  the  trust  acquires  no  title  to  the 
property.^  The  fact  that  a  certificate  of  stock  is  issued  to  "  the 
estate  of  "  a  person  deceased  is  notice  of  the  trust  to  one  who 
takes  it  in  pledge  from  one  of  two  executors.^ 

477.  A  corporation  whose  stock  is  transferred  upon  its 
books  by  a  trustee  or  executor  to  secure  a  loan  to  himself 
may  be  liable  for  permitting  the  transfer,  when  its  officers  have 
good  reason  to  know  that  the  trustee  or  executor  is  violating  his 
trust.*  In  a  case  in  the  Circuit  Court  of  the  United  States  for 
Maryland  holding  a  bank  liable  for  permitting  such  a  transfer, 
Chief  Justice  Taney  said :  ^  "  Undoubtedly,  the  mere  act  of  per- 
mitting this  stock  to  be  transferred  by  one  of  the  executors,  fur- 

1  Ham  V.  Ham,  58  N.  H.  70;  and  mers'  Bank  of  Baltimore,  Taney,  310, 

see  Pannell  v.  Hurley,  2  Coll.  241.  330. 

^  Ham  V.  Ham,    supra ;  Cottam  v.  In    this  case   the  transfer  was  not 

Eastern    Counties   Ry.   Co.  1    Johns,  made   until  after  the   lajise  of   eight 

&  H.  243.  years    after   the  testator's    death,    at 

^  Ham  V.  Ham,  supra.  which  time    the   bank  was    bound  to 

*  Magwood  V.  Railroad  Bank,  5  S.  presume  that  the  testator's  debts  had 

C.  379;  Loring  v.  Salisbury  Mills,  125  been   paid,  and  was    bound   to  know 

Mass.  138.  that    the    executor    had    no   implied 

'  Lowry   v.   Commercial   and  Far-  authority  to  sell  the  testator's  stock. 

370 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.      [§§  478,  479. 

nishes  no  ground  for  complaint  against  the  bank,  although  it 
turns  out  that  the  executor  was,  by  the  act  of  transfer,  converting 
the  property  to  his  own  use ;  for  an  executor  may  sell  or  raise 
money  on  the  property  of  the  deceased,  in  the  regular  execution 
of  his  duty  ;  and  the  party  dealing  with  him  is  not  bound  to  in- 
quire into  his  object,  nor  liable  for  his  misapplication  of  the 
money.  .  .  .  But  if  these  officers,  at  the  time  of  the  transfer,  had 
reason  to  believe  that  the  executor,  by  the  act  of  transfer,  was 
converting  this  stock  to  his  own  use,  in  violation  of  his  duty,  then 
the  bank,  by  permitting  the  transfer  knowingly,  enabled  the  ex- 
ecutor to  commit  a  breach  of  his  trust,  and  upon  principles  of 
justice  and  equity  is  as  fully  liable  as  if  it  had  shared  in  the  profits 
of  the  transaction.  The  object  of  the  executor  could  not  have 
been  accomplished  without  the  cooperation  of  the  bank,  in  per- 
mitting the  transfer  to  be  made  on  its  books." 

478.  One  who  takes  in  pledge  shares  of  stock  knowing 
that  the  pledgor  holds  them  in  trust  and  that  he  is  using 
them  to  secure  his  own  debt,  cannot  hold  them  as  against  the 
beneficial  owner,  though  there  is  nothing  upon  the  face  of  the 
certificate  to  indicate  such  trust.^ 

479.  A  person  in  good  faith  loaning  money  upon  cer- 
tificates of  stock  which  do  not  indicate  any  trust,  is  not 
bound  to  examine  the  books  of  the  corporation,  or  to  look  be- 
yond the  certificate  assigned  to  him  to  ascertain  the  validity  of 
former  assignments  ;  and  his  title  is  not  affected  by  the  fact  that 
the  stock  was  originally  held  by  the  borrower  as  "  trustee  "  for  a 
third  person,  and  that  the  borrower  had  by  mesne  conveyances 
fraudulently  obtained  a  transfer  to  himself,  making  the  pledge  in 
question  to  secure  his  own  debt.^  The  corporation  itself  is  liable 
in  damages  to  the  cestui  que  trust  for  negligently  recording  a 
transfer  by  the  trustee,  when  it  has  knowledge  that  the  present 
holder  is  a  trustee,  and  also  has  knowledge  of  the  name  of  the 
cestui  que  trust.^ 

^  Crocker  u.  Crocker,  31  N.  Y.  507;  supra;   Bayard    v.    Farmers'    &   Me- 

Lorinjr  v.  Brodie,  134  IMass. ,  chanics'  Bank,  52  Pa.  St.  232;  Lowry 

2  Salisbury  Mills  v.  Townsend,  109  v.    Commercial     &    Farmers'    Bank, 

Mass.  115;   Atkinson   v.  Atkinson,   8  Taney,  310. 
Allen  (Mass.),  15  ;  Crockery.  Crocker,         3  j^oring    v.    Salisbury    Mills,    125 

371 


§§  480,  481.]    EIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

480.  But  contrary  to  the  better  and  prevailing  rule,  it  has 
been  held  in  Maryland  and  California,  that  tiie  addition  of  the 
word  "  trustee  "  in  a  certificate  of  stock  does  not  show  that  the 
person  to  whom  it  is  issued  has  not  the  full  right  to  pledge  it  as 
his  own,  nor  give  the  person  dealing  with  him  notice  that  any 
other  person  has  any  interest  in  the  same.^  "  All  that  is  in- 
tended to  be  decided  is,  that  the  mere  addition  of  the  word  '  trus- 
tee '  after  the  name  in  the  certificate  is  not,  in  this  state,  of  itself, 
nothing  more  appearing,  to  be  deemed  constructive  notice  of  the 
equities  of  a  secret  owner  of  the  stock.  If  it  is  intended  that  the 
so-called  trustee  shall  not  have  power  to  sell  or  hypothecate  the 
stock,  without  the  expi'ess  consent  of  the  equitable  owner,  it  is 
an  easy  matter  to  limit  his  authority  by  apt  words  in  the  certifi- 
cate." 2  Moreover,  it  is  declared  that  if  the  word  raises  a  pre- 
sumption that  some  one  else  is  the  owner,  it  may  be  inferred  that 
the  latter,  in  clothing  the  trustee  with  the  legal  title,  invested 
him  with  authority  to  sell  in  the  usual  course  of  business.  "  Con- 
siderations of  public  policy  and  common  justice  demand  that 
when  stock  is  placed  in  the  name  of  a  trustee  under  these  cir- 
cumstances, the  secret  owner  shall  be  bound  by  the  act  of  his 
trustee  dealing  with  persons  who  have  no  actual  notice  of  the 
relations  between  the  parties."  ^ 

481.  There  is  a  material  distinction  between  pledges  by 
executors  or  administrators  and  pledges  by  trustees  ;  for  a 
sale  and  transfer  of  stock  is  ordinarily  in  the  line  of  duty  for  the 
former;  but  trustees  presumptively  hold  trust  property  as  an 
investment  for  their  cestuis  que  trusts     Therefore,  while  mere 

Mass.  138;  and  see  Salisbury  Mills  v.  ^  Brewster   t?.    Sime,  42    Cal.   139, 

Townsend,  supra,  per  Chapman,  C.  J.;  144. 

Pratt    V.   Taunton    Copper    Co.    123  3  Brewster     v.    Sime,     supra,    per 

Mass.  110;  Pollock  v.  National  Bank,  Crockett,  J. 

7  N.  Y.  274,  278;    Telegraph  Co.  v.  •*  Prall  v.  Tilt,   28   N.  J.  Eq.  479, 

Davenport,    97    U.    S.    369;   and   see  484,   per    Green,  J.;    Gaston   v.   Am. 

Willis  V.  Phila.  &  Darby  R.  K.  Co.  6  Exch.  Nat.  Bank,  29  lb.  98,  102,  per 

Weekly  Notes  Cas.  461.  Runyon,  Chancellor;  Bayard  v.  Far- 

1  Albert  v.  Savings  Bank  of  Balti-  mers'  &  Mechanics'  Bank,  52  Pa.  St. 

more,  1   Md.   Ch.  407;  S.  C.  affirmed  232,  per  Strong,  J.;  Leitch  v.  Wells, 

2  Md.  159;  Thompson  v.  Toland,  48  48   N.  Y.    585;    Jaudon  v.  National 

Cal.  99  ;  Winter  v.  Belmont  Mining  City  Bank,  8  Blatchf.  430  ;  and  see 

Co.  53  Cal.  428;  see,  however,  Brew-  Nutting  u.  Thomason,46  Ga.  34  ;  Stin- 

ster  V.  Hartley,  37  lb.  15.  son  v.  Thornton,  56  lb.  377 ;  Carter  v. 
372 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION. 


[§482. 


knowledge  that  an  executor  or  administrator  is  dealing  in  a  fidu- 
ciary capacity  with  assets  of  the  estate,  is  not  enough  to  raise  a 
suspicion  or  to  put  one  dealing  with  him  upon  inquiry,  such 
knowledge  affects  one  dealing  with  a  trustee  with  notice  of  the 
terms  of  the  trust.  One  taking  stock  in  pledge  from  a  trustee 
deals  with  it  at  his  peril,  for  there  is  no  presumption  that  the 
trustee  has  a  right  to  dispose  of  it,  as  there  is  in  the  case  of  an 
executor.!  It  is  negligence  in  one  taking  stock  in  pledge  for 
loans  to  a  trustee  to  act  without  inquiry  ;  and  certainly  if  the 
pledgee  has  reasonable  ground  for  believing  that  the  trustee 
intends  to  apply  the  money  obtained  upon  such  loans  to  his 
private  uses,  he  will  be  regarded  as  cooperating  in  a  breach  of 
trust.2 


482.  For  the  purposes  of  administration,  the  title  of  an 
executor  is  absolute,  and  a  purchaser  or  pledgee  from  him  of 
personalty  of  the  estate  is  neither  required  to  notice  the  provis- 
ions of  the  testator's  will,  nor  made  liable  for  the  executor's  mis- 
application of  the  purchase  money .^     To  require  evidence  of  au- 


National  Bank  of  Lewiston,  71  Me. 
448,  453.  In  this  case  the  court  say: 
"  The  law  recognizes  a  distinction  be- 
tween an  ordinary  trustee  and  an  ex- 
ecutor. The  former  has  possession 
for  custody  and  the  latter  for  adminis- 
tration. The  latter  has  a  necessary 
incidental  power  of  disposal  which  the 
former  does  not.  And  as  a  conse- 
quence when  one  purchases  of  the 
latter  stocks  or  other  securities  bearing 
on  their  face  the  revelation  of  a  trust, 
he  may  do  so  safely  in  the  absence  of 
notice  or  knowledge  of  any  intended 
breach  of  trust  on  the  part  of  the  ex- 
ecutor; but  if  he  purchase  like  trust 
property  of  an  ordinary  trustee  the 
law  imposes  upon  him  the  duty  of  in- 
quiring into  the  right  of  the  trustee  to 
change  the  securities." 

1  Woods'  Appeal,  92  Pa.  St.  379. 

2  Jaudon  v.  Nat.  City  Bank,  8 
Blatchf.  430;  Duncan  v.  Jaudon,  15 
Wall.  1G5;  Lowry  v.  Commercial  & 
Farmers*  Bank,  Taney,  310. 


8  Russell  V.  Plaice,  18  Beav.  21; 
Cruikshank  v.  Duffin,  L.  R.  13  Eq. 
555  ;  Tyrrell  v.  Morris,  1  Dev.  &  B. 
(N.  C.)  Eq.  559;  Vane  v.  Rigden, 
L.  R.  5  Ch.  App.  663.  In  the  latter 
case  Lord  Hatherly  said:  "  Lord 
Thurlow  expressed  his  opinion  clearly 
to  be  that  the  executor  is  at  lib- 
erty either  to  sell  or  pledge  the  as- 
sets of  the  testator.  Scott  i'.  Tyler, 
2  Dick.  712,  725.  In  fact  he  has 
complete  and  absolute  control  over 
the  property,  and  it  is  for  the  safety 
of  manhood  that  it  should  be  so;  and 
nothing  which  he  does  can  be  disputed, 
except  on  the  ground  of  fraud  or  col- 
lusion between  him  and  the  creditor." 
And  Sir  W.  M.  James  in  the  same 
case  said:  "It  seems  to  me  to  be  set- 
tled on  principle,  as  well  as  by  author- 
ity, that  an  executor  has  full  right  to 
mortgage  as  well  as  to  sell;  and  it 
would  be  very  inconvenient  and  very 
disastrous  if  the  executor  wore  obliged 
immediately  to  convert  into  money  by 

373 


§  482.]      RIGHTS  AND   LIABILITIES   OF   A  PLEDGEE   OF   STOCK. 

thority  beyond  the  letters  testamentary,  might  greatly  delay  and 
embarrass  the  executor  in  the  discharge  of  his  duties. ^  The 
executor  has  an  inherent  right  to  sell  the  personal  assets  of  the 
estate,  and  the  same  right  to  pledge  them ;  and  the  purchaser  in 
the  one  case,  or  the  creditor  in  the  other,  has  no  concern  with 
the  purpose  for  which  the  executor  makes  the  sale  or  pledge. 
The  executor  is  liable  to  those  interested  in  the  estate  for  any 
misapplication  of  the  assets ;  but  the  purchaser  or  pledgee  is  not 
bound  to  know  whether  the  money  obtained  is  required  for  the 
payment  of  debts  of  the  estate,  or  in  fact  to  know  anything  about 
the  estate  beyond  the  executor's  appointment.^  The  same  rule 
applies  to  administrators.  "  The  law  casts  the  legal  owner- 
ship of  personal  property  of  a  deceased  intestate  upon  his  admin- 
istrators. They  are  sometimes  said  to  be  trustees,  but  they  are 
such  for  administration.  Their  primary  duty  always  is  to  dis- 
pose of  the  personal  property,  and  therewith  pay  the  debts  of  the 
intestate  and  make  distribution  among  his  next  of  kin.  A  sale 
and  transfer  of  stocks  by  them  is  therefore  in  the  line  of  their 
duty.     There  is  no  cestui  que  trust  having  a  right  to  interfere 


sale  every  part  of  the  assets  of  the  tes- 
tator. It  is  a  very  common  practice 
for  an  executor  to  obtain  an  advance 
from  a  banker  for  the  immediate  wants 
of  the  estate  by  depositing  securities. 
It  would  be  a  strange  thing  if  that 
could  not  be  done." 

The  American  cases  are  to  the  same 
effect.     Smith  v.  Ayer,  101  U.  S.  320. 

^  Bayard  v.  Farmers'  &  Mechanics' 
Bank,  52  Pa.  St.  232;  Woods'  Appeal, 
92  Pa.  St.  379;  Goodwin  v.  Am.  Nat. 
Bank,  13  Rep.  268;  Carter  v.  Nat. 
Bank  of  Lewiston,  71  Me.  448.  Mr. 
Justice  Virgin  in  that  case  said:  "  As 
a  necessary  incident  to  the  execution 
of  the  will  and  the  administration  of 
the  estate,  the  power  to  dispose  of  the 
personal  estate  is  given  to  the  execu- 
tor. And  no  general  proposition  of 
law  is  better  established  than  that  an 
executor  has  an  absolute  control  over 
all  the  personal  effects  of  his  testator. 

While  it  is  the  duty  of  an  executor 
to  use  reasonable  diligence  in  convert- 

374 


ing  assets  into  money  for  the  general 
purposes  of  the  will,  the  law  permits 
him  to  exercise  a  sound  discretion  as 
to  the  time,  within  a  limited  period, 
when  he  will  sell.  And  high  authority 
has  declared  that  circumstances  may 
exist  in  which  it  is  certainly  not  wrong 
in  him,  although  it  may  not  be  a  posi- 
tive duty,  to  make  advances  for  the 
benefit  of  the  estate  and  reimburse 
himself  therefrom.  Munroe  v.  Holmes, 
13  Allen,  109,  110.  If  he  may  advance 
his  own  money  for  the  general  purposes 
of  the  will  and  may  sell  the  personal 
efEects  for  the  like  object,  it  is  difficult 
to  see  why,  in  the  absence  of  any  pro- 
hibitory provision  in  the  will,  he  may 
not  mortgage  or  pledge  the  assets  for 
the  same  purpose  ;  and  the  great 
weight  of  authority  so  holds." 

2  Leitch  V.  Wells,  48  N.  Y.  585; 
Hutchins  v.  State  Bank,  12  Met. 
(Mass.)  421  ;  and  see  Petrie  v.  Clark, 
11  S.  &R.  (Pa.)  377. 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.  [§  483. 

and  prevent  such  a  transfer.  Hence  letters  of  administration 
are  always  sufficient  evidence  of  authority."  ^ 

A  foreign  executor  or  administrator  can  generally  make  a  valid 
transfer  of  shares  of  stock.  For  this  purpose  there  is  not  the 
occasion  that  there  is  when  an  executor  or  administrator  assigns 
a  mortgage  that  his  authority  to  act  should  appear  by  letters 
granted  in  the  state  where  the  land  is  situated.^ 

By  statute  in  Pennsylvania  foreign  executors  and  administra- 
tors are  invested  with  authority  over  shares  of  stock  of  incorpor- 
ated companies  within  that  state  standing  in  the  names  of  dece- 
dents ;  and  therefore  in  the  absence  of  any  provision  in  the 
bj^-laws  or  articles  of  association  of  a  national  bank  to  the  con- 
trary, such  a  bank  is  bound  to  recognize  a  transfer  of  its  stock 
by  a  foreign  executor  only  appointed  in  another  state.^ 

483.  One  of  several  executors  has  the  same  power  to  dis- 
pose of  his  testator's  personalty  that  all  the  executors  have 
jointly.  One  executor  may  pledge  a  note  belonging  to  the 
estate  of  his  testator,  or  may  pledge  stock  belonging  to  it  as 
collateral  security  for  a  debt  of  the  estate ;  *  and  the  pledgee  is 
not  bound  to  inquire  or  to  know  in  any  particular  case  whether 
the  executor  is  obtaining  the  money  for  that  purpose  or  for  his 
own  benefit.  "  Co-executors  are  regarded  in  law  as  an  individual 
person  ;  and  the  acts  of  any  one  of  them,  in  respect  to  the  ad- 
ministration of  the  effects,  are  deemed  to  be  the  acts  of  all ;  as 
where  one  releases  a  debt  or  settles  an  account  of  a  person  with 
the  deceased,  or  surrenders  a  term,  or  sells  the  goods  and  chat- 
tels of  the  estate,  his  acts  bind  the  others."  ^  One  of  four  execu- 
tors placed  in  the  hands  of  his  brokers  certain  certificates  of  stock 
which  belonged  to  the  estate  of  his  testator.  These  certificates 
were  pledged  as  collateral  security  for  the  personal  indebtedness 
of  this  individual  executor,  and  were  accompanied  by  a  blank 
bill  of  sale  and  a  power  of  attorney  signed  by  him  as  acting  exec- 
utor.    The  brokers  in  turn  pledged  the  stock  to  one  who  ad- 

1  Bayard  v.  Farmers'  &  Mechanics'  (C.  C.  E.  D.  Pa.)  8  Weekly  Notes, 

Bank,    52    Pa.    St.    232,    235.      Per  Cas.  131. 

Strong,  J.  *  Wheeler  v.  Wheeler,  9  Cow.  (N. 

The  above  case  led  to  the  passage  Y.)  34. 

of  Stat.  23,  May,  1874,  Purdon  1942.  ^  Wood's  Appeal,  92  Pa.   St.  379. 

'■'  Jones  on  Mortgages,  §  797.  Per  Trunkey,  J. 


2  Ilobbs   V.    Western    Nat.    Bank, 


375 


§§  484,  485.]    RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

vanced  money  to  tliem  in  the  belief  that  the  brokers  were  the 
real  owners  of  the  stock.  Upon  a  bill  in  equity  filed  by  the 
remaining  executors  to  recover  the  stock,  it  was  held  that  the 
same  principle  which  prevails  in  the  case  of  an  absolute  owner 
applies  in  the  case  of  an  executor  who  invests  the  holder  of  cer- 
tificates of  stocks  with  apparent  ownership,  and  that  there  could 
be  no  recovery  of  the  stock  until  the  advances  made  thereon  were 
paid.^ 

484.  A  trustee  of  an  insolvent  debtor,  whose  duty  is  like 
that  of  an  executor  or  administrator,  to  dispose  of  the  property 
and  distribute  it,  would  probably  stand  upon  the  same  footing.^ 
He  does  not  hold  the  property  for  custody  but  for  administration. 

485.  Knowledge  that  an  executor  or  administrator  is  mis- 
appropriating securities.  —  An  exception,  however,  has  been 
made  in  respect  to  cases  in  which  an  executor  or  administrator 
personally  borrows  money  upon  the  security  of  a  certificate  of 
stock  belonging  to  the  estate  in  his  charge,  in  such  a  way  that 
the  person  dealing  with  him  knew,  or  might  have  known,  that 
such  representative  was  using  tlie  securities  of  the  estate  for  his 
own  debts;  and  in  such  cases  it  has  been  held  that  a  person  hav- 
ing knowledge  of  the  representative's  fraudulent  conversion  of 
stock  belonging  to  the  trust  fund,  can  acquire  from  him  no  title 
to  it.3 

The  distinction  between  a  case  where  one  dealing  with  an 
executor  has  knowledge  that  he  is  abusing  his  trust  in  using  for 
himself  or  for  another  stock  belonging  to  the  estate,  and  a  case 

1  Wood's  Appeal,  92  Pa.  St.  379.        Eq.  182;  Abbott  v.  Reeves,  49  Pa.  St. 

2  Bajard  v.  Farmers'  &  Mechanics'  494;  Pendleton  v.  Fay,  2  Paige  (N. 
Bank,    52    Pa.    St.     232,    235.      Per     Y.),  202. 

Strong,  J.  And  see  Hill  v.  Simpson,  7  Ves.  152, 

«  Smith  V.  Ayer,  101  U.  S.  320,  326;  168  ;  Collinson  v.  Lister,   7  DeG.  M. 

Wood  V.  Ellis,  Court  of  Com.  Pleas  &  G.  633;  Dodson  r.  Simpson,  2  Rand. 

Pa.  31   Leg.  Int.  140;  affirmed  in  the  (Va.)   294;    Christmas   v.  Mitchell,  3 

Supreme   Court   in  Ellis's   Appeal,  8  Ired.  (N.  C.)  Eq.  535;  Williamson  v. 

Weekly  Notes  Cas.  538;  Williamson  Branch  Bank  of  Mobile,  7  Ala.    906; 

V.  Morton,  2  Md.  Ch.   94  ;  Albert  v.  Haynes  r.  Forshaw,  11  Hare,  93;  Wil- 

Savings   Bank   of  Baltimore,   2   Md.  son  v.  Moore,  1  Mylne  &  K.  337;  Colt 

159;  Ashton  v.  Atlantic  Bank,  3  Allen  v.  Lasnier,  9  Cow.  N.  Y.  320;  Miller 

(Mass.),   217;    Nicholls    v.  Peak,   12  v.  Williamson,  5   Md.   219;  Carter  v. 

N.  J.  Eq.  69;   Dey  v.  Dey,  26  N.  J.  Nat.  Bank  of  Lewiston,  71  Me.  448. 

376 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.  [§  485. 

where  one  dealing  with  an  executor  or  administrator  in  relation 
to  such  stock  is  led  to  believe  that  he  is  using  it  legitimately,  is 
well  illustrated  by  two  recent  cases  in  New  Jersey  arising  out  of 
the  administration  of  the  same  estate.  In  the  one  case  ^  the  ex- 
ecutrix, who  was  the  widow  of  the  testator,  assigned  certain  stock 
belonging  to  the  estate  as  collateral  security  for  the  debt  of  two 
of  her  sons,  who  with  other  children  of  hers  were  interested  in  the 
estate.  The  will  gave  a  life  estate  in  the  property  to  the  widow, 
with  power  of  sale  and  re-investment ;  and  after  her  death  the 
property  was  to  go  to  all  the  children  ;  although  in  a  certain  con- 
tingency the  executrix  was  authorized  to  advance  a  certain  sum  to 
each  of  the  sons  whose  debts  she  secured.  The  certificates  of  stock 
so  assigned  stood  in  the  name  of  the  testator,  and  the  sons'  cred- 
itor knew  at  the  time  of  the  transfer  that  the  stock  belonged  to  the 
estate.  The  sons  were  in  business,  and  the  stock  was  assisned  to 
give  them  credit  for  goods  to  be  purchased.  The  creditor  may  very 
likely  have  thought  that  the  executrix  had  a  legal  right  to  pledge 
the  stock  as  security  for  the  credit  to  be  given  the  sons.  But 
that  was  held  not  to  be  enough  to  protect  him  in  the  possession 
of  the  stock ;  for  he  knew  that  the  executrix  was  not  disposing 
of  it  in  the  course  of  administration,  but  was  pledging  it  as 
executrix,  to  secure  credit  for  her  sons  in  their  private  business  ; 
a  purpose  obviously  and  confessedly  not  connected  with  her  trust 
as  executrix,  and  it  was  his  duty  to  inquire  as  to  her  authority  so 
to  deal  with  the  stock.  Having  disregarded  this  duty  he  could 
not  successfully  claim  protection  on  the  ground  of  bond  fides  and 
ignorance. 

In  the  other  case^  the  same  sons  obtained  ci'edit  with  another 
person  by  pledging  stock  as  collateral  security.  The  creditor 
undoubtedly  knew  that  the  stock  had  belonged  to  the  testator, 
and  that  at  the  time  of  the  negotiation  it  still  stood  in  his  name 
on  the  books  of  the  company,  as  appeared  by  the  certificates,  for 
these  were  delivered  to  him  by  the  sons  with  a  power  of  attorney 
in  blank  for  the  transfers,  duly  executed  by  the  executrix.  The 
circumstances  distinguishing  this  case  from  the  other  are  tliat 
the  application  for  credit  was  made  by  one  of  the  sons,  who 
represented  that  the  stock  in  question  belonged  to  himself  and 
his  brother,  and  had  been  acquired  by  them  on  account  of  their 

1  Prall  V.  Ilainil,  28  N.  J.  Ivj.  GO.  »  Prall   v.  Tilt,  28    N.  J.  Eq.  479, 

afTirming  27  N.  J.  Eq.  303. 
877 


§§  486,  487.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF   STOCK. 

interest  in  the  estate.  This  statement  was  corroborated  by  the 
executrix  in  delivering  to  her  sons  the  certificates  and  her  blank 
power  of  attorney  to  transfer  the  stock.  The  creditor  in  this 
case  dealt  with  the  soils,  who  held  the  certificates  and  dealt  with 
them  as  their  own  property,  by  virtue  of  a  title  valid  upon  its  face, 
although  derived  from  the  executrix ;  while  the  creditor  in  the 
other  case  received  and  dealt  with  the  stock  as  the  property  of 
the  estate. 

486.  Knowledge  that  an  executor  is  perverting  the  per- 
sonal assets  of  the  estate  in  his  hands  to  his  own  use  is  im- 
puted to  a  pledgee,  from  knowledge  that  he  is  using  a  promissory 
note  belonging  to  such  estate  as  collateral  security  for  money  bor- 
rowed for  the  use  of  a  commercial  firm  of  which  the  executor  was  a 
member.^  The  pledgee  dealing  with  the  executor  is  bound  to  look 
into  his  authority,  and  is  held  to  a  knowledge  of  all  the  limita- 
tions thereon  imposed  by  law  or  by  the  will  under  which  he  acts. 
Such  knowledge  of  the  trust  as  should  put  the  pledgee  upon  in- 
quir}^  will  charge  him  with  actual  knowledge  of  the  trust.^ 

Stocks,  promissory  notes,  or  other  personal  assets  taken  by  a 
pledgee  with  knowledge  that  the  executor  or  administrator  is 
acting  in  violation  of  his  trust,  and  in  disregard  of  its  obligations, 
may  be  followed  and  recovered  of  such  pledgee.^ 

487.  The  fact  that  an  executor  pledges  a  certificate  of 
stock  issued  to  him  as  executor,  to  secure  his  own  note, 
is  not  conclusive  notice  to  the  pledgee  that  the  executor  is  pro- 
curing the  money  for  his  own  private  use.  On  the  contrary,  if 
the  pledgee  makes  a  loan  upon  such  note  and  security  in  good 
faith,  and  relying  upon  the  executor's  affirmation  that  the  money 
is  wanted  for  the  settlement  of  the  estate,  the  pledge  is  valid.* 

1  Smith  V.  Ayer,  101  U.  S.  320;  71  Me.  448.  Virgin,  J.,  said :  "The 
Thomasson  v.  Brown,  43  Ind.  203  ;  note  could  not  be  collected  against  the 
Prosseri;.  Leathernian,  4  How.  (Miss.)  estate,  for  it  was  the  personal  note  of 
237;  Loring  r.  Brodie,  134  Mass. .  the  executor.     He  could  not  create  a 

2  Ellis's  Appeal,  8  Weekly  Notes  debt  in  that  manner  against  the  estate. 
Cas.  538 ;  Webb  v.  Graniteville  And  if  the  money  was  thereby  pro- 
Manuf.  Co.  11  S.  C.  396.  cured  for  his  own  private  use,  and  the 

8  Smith  V.  Ayer,  supra;  Thomasson     bank  knew  it  at  the  time,  the  transfer 

V.  Brown,  supra.  of  the  stock  would  be  a  devastavit,  and 

*  Carter  v.  Nat.  Bank  of  Lewiston,     could  not  be  upheld.     If  the  note  had 

378 


RIGHTS  WITH  ONE  HOLDING  A  FIDUCIARY  RELATION.      [§§  488,  489. 

488.  The  same  facts  that  are  notice  to  an  individual  are 
notice  to  a  corporation  that  an  executor  or  administrator  bor- 
rowing money  of  him  is  committing  a  breach  of  trust.  "  If  a 
banking  company  has  what  is  called  a  branch  bank,  managed  or 
superintended  by  a  local  agent,  who,  in  that  character,  advances 
money  of  the  banking  company,  by  way  of  loan,  knowing  at  the 
time  facts  which  render  the  loan  an  improper  transaction,  and 
would  prevent  the  agent  from  sustaining  it  were  the  transaction 
his  own, — as  in  the  instance  of  a  trustee  borrowing  money  in 
that  character,  who,  by  the  very  act  of  so  borrowing,  commits  a 
breach  of  trust,  having  sought  and  obtained  the  money  for  the 
sole  purpose  of  misapplying  it,  and  the  circumstances  being  all 
known  at  the  time  to  the  agent  lending,  —  I  apprehend  it  to  be 
clear  that  the  banking  company  acquire  no  better  title  than  the- 
agent  would  have  done  had  the  case  been  his  own,  or  than  the 
trustee."  ^ 

489.  A  pledgee  is  not  bound  to  see  to  the  proper  appli- 
cation of  the  proceeds  of  a  loan  obtained  by  an  executor. 
Thus,  an  executor  having  power  either  to  pay  certain  legacies 
or  to  hold  a  portion  of  the  estate  in  trust,  and  to  pay  the  income 
thereof  to  the  legatees  during  their  lives,  represented  to  a  bank 
that  he  desired  to  pay  the  legacies,  and  that  it  would  be  to  the 
advantage  of  the  estate  to  obtain  a  loan  upon  a  pledge  of  certain 
stock,  so  as  not  to  be  obliged  to  sell  this  until  there  should  be  a 
more  favorable  condition  of  the  market.  The  loan  was  made 
upon  his  note  as  executor,  secured  by  the  stock,  and  the  proceeds 

been  given  to  the  bank  for  a  private  plaint.  The  case  finds  '  that  the 
debt  due  to  the  bank  from  the  execu-  money  was  loaned  in  good  faith  by 
tor,  created  before  or  during  his  ex-  the  bank,  and,  upon  the  statement 
ecutorship,  but  independent  thereof,  made  by  Cook,  that  the  same  was 
it  would  come  within  the  principle  of  wanted  in  the  settlement  of  the 
the  numerous  cases  before  cited,  where  estate.'  The  presumption  is,  that 
the  transaction  itself  would  speak  and  he  was  acting  faithfully.  There  is 
conclude  the  bank.  But  if  given  as  no  evidence  tot  he  contrary,  and  the 
a  voucla-r  for  money  obtained  for  a  presumption  must  stand."  The  doc- 
legitimate  purpose  connected  with  a  trine  of  this  case  is  recognized  in 
hond  fide  administration  of  the  will,  Pettingill  v.  Pettingill,  60  Me.  412, 
then,  though  the   executor  alone  was  425. 

made  liable  for  its  payment,  the  trans-         ^  Collinson  v.  Lister,  7  De  G.  M.  & 

action  would    be   legitimate,  and  the  G.  633,  per  Knight  Bruce,  L.  J. 
estate  would  have  no  reason  for  com- 

379 


§  490.]  RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

were  placed  to  his  private  account  in  the  bank.  Shortly  after- 
wards he  transferred  a  part  of  the  proceeds  to  another  account 
kept  by  hira  in  the  bank  as  town  treasurer.  The  note  was 
renewed  from  time  to  time  for  four  years,  when  the  executor  left 
the  state  a  defaulter.  It  was  held  that  no  knowledge  of  actual 
fraud,  either  accomplished  or  intended,  was  to  be  imputed  to  the 
bank  from  these  circumstances,  and  that  there  was  no  duty  laid 
upon  the  bank  to  see  to  the  application  of  the  money.  The 
declared  purpose  of  the  loan  was  one  for  which  the  bank  could 
safely  make  the  loan.^  The  money  obtained  upon  the  loan 
became  so  far  his  own  that  he  was  entitled  to  take  possession 
of  it,  or  place  it  to  his  own  private  account,  to  transfer  it  from 
one  account  to  another,  or  to  draw  it  out,  without  imposing  upon 
the  bank  any  obligation  to  know  or  suspect  that  he  was  commit- 
ting a  fraud  in  his  trust.  Neither  was  any  knowledge  of  fraud, 
accomplished  or  intended,  imputed  to  the  bank  from  the  fact 
that  the  executor  transferred  money  from  his  own  account  to  his 
account  as  treasurer,  and  drew  checks  upon  the  latter  account, 
payable  to  himself  or  bearer.  The  bank  was  "  not  required  to 
assume  the  hazard  of  correctly  reading  in  each  check  the  pur- 
pose of  the  drawer."  Nor  was  the  continuance  and  renewal  of 
the  loan  a  circumstance  from  which  the  bank  should  be  charged 
with  knowledge  of  the  executor's  fraudulent  purpose.  The 
reason  for  borrowing  was  also  a  reason  for  continuing  the 
loan. 

490.  The  same  rule  is  applied  to  dealings  with  persons 
occupying  other  fiduciary  relations,  which  primd  facie  give 
them  no  power  of  disposal  of  the  trust  property,  such  as  guardian, 
receiver,  master  in  chancery,  or  officer  of  a  corporation.  One 
dealing  with  persons  occupying  such  positions  of  trust,  with 
notice  that  they  are  using  trust  property  for  their  private  use,  is 
not  entitled  to  protection  as  a  bond  fide  purchaser.^  "  It  is  an 
undoubted  principle  of  equity,"  say  the  Supreme  Court  of  Penn- 

1  Goodwin  I'.  Am.  Nat.  Bank  (Conn,  felin,  7  Johns.  (N.  Y.)  Ch.  150  ;  Mul- 
Dec.  1881),  13  Rep.  268.  ligan  j;.  Wallace,  3  Rich.  (S.  C.)  Eq. 

2  Atkinson  v.  Atkinson,  8  Allen  111;  "Webb  v.  Grauiteville  ]\Ianuf. 
(Mass.),  15;  Jaudon  r.  National  City  Co.  11  S.  C.  396. 

Bank,  8  Blatchf.  430  ;  Field  v.  Schief- 
380 


RIGHTS  WITH   ONE   HOLDING  A  FIDUCIARY   RELATION.         [§  491. 

sylvania,^  "  that  the  owner  of  property  may  follow  and  reclaim 
it  wherever  he  can  find  and  identify  it,  until  arrested  in  the 
pursuit  by  the  countervailing  equity  of  a  bond  fide  purchaser,  for 
a  valuable  consideration  paid.  A  purchaser  with  notice  that  the 
sale  is  a  breach  of  trust,  or  a  fraud  upon  the  rights  of  the  real 
owner,  is  particeps  criminis  with  the  fraudulent  vendor,  and  his 
purchase  cannot  protect  him  against  the  owner,  because  such  a 
purchase  is  not  bond  fide.  Notice  is  either  actual  or  constructive. 
Constructive  notice  is  in  its  nature  no  more  than  evidence  of 
notice,  the  presumption  of  which  is  so  violent  that  the  court  will 
not  even  allow  of  its  being  controverted.  Whatever  is  sufl&cient 
to  put  a  party  upon  inquiry,  is  in  equity  held  to  be  good  notice 
to  bind  him.  Where  a  purchaser  cannot  make  out  a  title  but  by 
a  deed  which  leads  him  to  another  fact,  he  shall  be  presumed 
to  have  knowledge  of  that  fact ;  so  he  is  supposed  to  have  knowl- 
edge of  the  instrument  under  which  the  party  with  whom  he 
contracts  as  executor,  or  trustee,  or  appointee,  derives  his  power." 

491.  These  principles  have  been  applied  to  the  case  of  a 
pledge  of  municipal  bonds  by  the  president  of  a  railroad 
company,  to  which  the  bonds  were  issued  and  to  which  they  be- 
longed, as  collateral  security  for  the  president's  own  debt ;  and  it 
appearing  upon  the  face  of  the  bonds  that  they  were  issued  to  the 
railroad  company,  and  that  they  were  indorsed  in  blank  by  the 
president  in  behalf  of  the  company,  it  was  held  that  one  taking 
the  bonds  as  security  for  an  existing  individual  debt  of  the  presi- 
dent himself,  was  bound  to  inquire  into  his  authority  to  make  the 
transfer ;  and  the  inquirer  would  have  found  that  the  president 
had  authority  merely  to  negotiate  the  bonds  for  the  benefit  of 
the  company.  The  court  say  that  one  purchasing  the  bonds  from 
the  president  for  a  money  consideration,  would  have  purchased  in 
pursuance  of  the  power,  and  would  not  have  been  atfected  by  any 
subsequent  misapplication  of  the  funds  by  the  president.  But 
when  a  creditor  of  the  president's  took  the  bonds  as  collateral 
security  for  his  individual  debt,  the  creditor  became  a  party  to 
the  misapplication  and  the  breach  of  trust.  Even  if  the  blank 
left  for  the  name  of  the  assignee  had  been  filled  up  with  that  of 
the  president  himself,  at  the  time  his  creditor  took  it,  there 
would  still  have  been  sufficient  to  put  him  upon  inquiry,  because 
1  Garrard  v.  Pittsburgh  &  Connelsville  R.  R.  Co.  29  Pa.  St.  154. 

381 


§  492.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

the  president  had  no  right  to  sell  to  himself  as  an  individual. 
But  the  blank  in  the  assignment  was  sufficient  to  show  any  man 
of  ordinary  prudence  that  it  was  an  unfinished  paper,  placed  in  his 
hands  as  a  convenient  mode  of  executing  the  power  to  sell  for  the 
benefit  of  the  company.  When  the  chief  officer  of  a  corporation  is 
found  in  possession  of  its  securities,  his  possession  is,  as  a  general 
rule,  presumed  to  be  the  possession  of  the  corporation.  The 
pledgee  in  this  case  was  accordingly  held  to  be  afiected  with  con- 
structive notice  of  the  rights  of  the  corporation  in  the  bonds  so 
pledged.! 

492.  In  Georgia  it  is  provided  by  the  Code  that  all  sales 
by  an  administrator  shall  be  public.  In  violation  of  this,  an 
administrator  sold  at  private  sale  certain  stock  belonging  to  the 
estate  of  the  intestate,  and  the  purchasers  resold  the  same  to  the 
defendants,  who  were  bond  fide  purchasers.  Whether  the  inter- 
mediate transfer  of  the  stock  was  or  was  not  registered  upon  the 
books  of  the  company  does  not  clearly  appear.  "  The  question 
is,"  said  the  court,  "  if  the  administrator  of  the  estate  does  col- 
lude with  the  purchaser  of  the  stock,  and  sells  it  to  him  at  pri- 
vate sale,  and  such  purchaser  of  the  stock  at  private  sale  after- 
wards sells  it  to  a  bond  fide  purchaser  for  value,  without  notice 
that  it  was  purchased  of  the  administrator  at  private  sale,  in 
fraud  of  the  riglits  of  the  parties  interested  therein,  will  such 
bond  fide  purchaser  of  the  stock  be  protected  in  a  court  of  equity  ? 
This  is  an  important  question  to  the  purchasers  of  stock  in  rail- 
road companies.  It  was  said,  on  the  argument  of  this  case,  that 
the  bond  fide  purchaser  of  this  stock  stood  in  no  better  condition 
than  the  bond  fide  purchaser  of  stolen  property ;  that  inasmuch 
as  the  thief  had  no  title  to  the  property  stolen,  those  who  pur- 
chased it  from  him,  or  derived  title  under  or  through  him,  ac- 
quired no  better  title  than  he  had,  and  he  having  none,  the 
bond  fide  purchaser  would  acquire  none."  But  the  court  admit- 
ting that,  as  between  the  original  parties,  the  transaction  was 
undoubtedly  invalid  to  divest  the  title  of  the  legatees,  held  that 
the  analogy  had  no  application  whatever  as  to  subsequent  pur- 
chasers, and  that  the  latter  were  entitled  to  the  protection  of  the 

1  Garrard  v.  Pittsburgh  &  Connelsville  R.  R.  Co.  29  Pa.  St.  154. 

382 


RIGHTS   WITH   ONE  HOLDING  A   FIDUCIARY  RELATION.         [§  493. 

court,  when  they  have  purchased  in  good  faith  for  vahie,  without 
notice  of  the  fraud  in  the  sale  by  the  administrator.^ 

493.  One  taking  a  pledge  of  stock  from  another  who  is 
professedly  acting  as  an  agent  cannot  infer  the  agent's  au- 
thority to  pledge  the  stock  as  coUateral  from  the  fact  that  he 
holds  a  certificate  with  an  irrevocable  power  of  attorney  to  trans- 
fer it,  signed  by  the  owner.  Such  a  certificate  and  power  of 
transfer  confer  upon  the  holder  the  apparent  legal  and  equitable 
title  "  only  when  he  appears  to  be  the  real  owner  of  the  stock. 
One  dealing  with  a  person  whom  he  knows  to  be  only  an  agent, 
or  with  a  person  who  professes  to  be  only  an  agent,  is  bound  to 
inquire  and  to  know  what  his  authority  is.  Thus,  a  person  hold- 
ing a  certificate  of  stock  as  collateral  for  a  loan  of  $3,000,  applied 
to  a  bank  for  a  loan  of  $8,000  upon  this  certificate,  stating  that 
he  wanted  it  for  a  client.  The  bank  agreed  to  make  the  loan  if 
the  applicant  would  procure  a  proper  power  of  attorney  to  be 
attached  to  the  certificate.  The  holder  of  the  certificate  by  rep- 
resenting to  the  owner  that  he  ought  to  have  the  instrument  to 
secure  his  loan,  procured  from  the  owner  a  transfer  and  irrevo- 
cable power  of  attorney  to  make  a  transfer  executed  in  blank. 
The  pledgee  filled  up  the  blanks,  save  the  name  of  the  transferee 
and  attorney,  and  delivered  it  with  the  certificate  to  the  bank, 
which  thereupon  made  the  loan.  The  pledgee  had  no  authority 
from  the  owner  to  repledge  the  stock,  and  the  latter  never  re- 
ceived any  part  of  the  money  procured  from  the  bank  upon  the 
stock.  In  an  action  by  the  bank  to  foreclose  the  pledge  it  was 
held  that  the  owner  was  not  estopped  from  asserting  his  title  to 
the  stock,  and  that  the  bank  could  assert  a  lien  only  for  the 
amount  for  which  the  owner  had  pledged  the  stock ;  that  while 
the  transfer  and  power  of  attorney  would  have  given  to  the  first 
pledgee  an  apparent  ownership  in  case  he  had  claimed  title,  or  an 
apparent  authority  to  sell  as  agent,  it  did  not  hold  him  out  as  au- 
thorized to  make  a  loan  or  to  pledge  the  stock,  or  at  most  it  only 
indicated  that  he  could  pledge  the  stock  for  an  authorized  loan. 
All  the  evidence  the  bank  had  of  his  authority  to  obtain  a  loan 
upon  the  stock  was  his  naked  assertion  ;  and  upon  this  assertion 
it  relied  at  its  own  risk.     The  owner  did  not  hold  him  out  as 

^  Nutting  V.  Thoinason,  46  Ga.  34.  377;  Ross  v.  Southwestern  K.  R.  Co. 
See,  also,  Stinson  v.  Thornton,  56  Ga.     53  Ga.  514. 

383 


§§  494,  495.]    RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

authorized  to  borrow  money  for  himself  ;  and  hence  the  owner  is 
not  estopped  from  denying  such  authority.^ 

494.  A  broker  who  buys  stock  on  an  order  from  another 
broker,  knowing  or  having  reason  to  know  that  the  latter  is 
acting  only  as  an  agent  for  an  undisclosed  principal,  has  no 
right  in  consequence  of  the  omission  to  name  the  principal,  to  pre- 
sume that  he  has  authorized  his  broker  to  pledge  the  stock  for 
his  own  debt.  It  is  wholly  immaterial  that  the  name  of  the  real 
owner  was  not  disclosed.  The  stock  is  held  in  trust  for  him  as 
much  as  it  would  be  had  his  name  been  given.^  Of  course,  when 
there  is  nothing  upon  a  certificate  of  stock,  or  upon  the  com- 
pany's record  of  it,  to  indicate  a  trust  on  the  part  of  the  holder, 
one  dealing  with  him  in  relation  to  the  stock,  without  reason  to 
know  that  it  is  held  in  trust,  is  not  affected  by  a  secret,  undisclosed 
trust.^ 

A  memorandum  of  "  Framingham  and  Lowell  Railroad  bonds 
as  collateral,"  on  a  joint  and  several  note,  signed  by  one  as  prin- 
cipal and  by  others  as  sureties,  is  not  notice  to  the  payee  that  the 
bonds  mentioned  should  accompany  the  note  for  the  protection 
of  the  sureties.  The  payee  is  under  no  obligation  in  consequence 
of  the  memorandum  to  take  care  of  the  interests  of  the  sureties 
by  refusing  to  lend  money  on  the  note,  and  a  different  security 
from  that  named  ;  and  does  not  lose  any  rights  against  them  by 
taking  notes  of  the  railroad  company,  instead  of  its  bonds,  as 
collateral.* 

IV.  His  Rights  as  Broker   Carrying  Stocks  upon  Margin. 

495.  The  carrying  of  stock  by  a  broker  for  a  customer 
upon  a  margin  creates  the  relation  of  pledgor  and  pledgee  be- 
tween the  parties,  unless  there  be  some  express  agreement  be- 
tween the  parties  which  would  constitute  the  transaction  a  mort- 

^  Merchants'   Bank   v.  Livingston,  amount  for  which  the  stock  was  sold. 

74  N.  Y.  223.  Merchants'    Bank   v.    Livingston,    17 

Pending  the  appeal  in  this  case  i^he  Hun,  321. 

stock  was  sold  by  consent  of  parties;  ^  Fisher  v.  Brown,  104  Mass.  259. 

but  at  the  time  of  the  second  trial  it  ^  Martin  v.  Sedgwick,  9  Beav.  333; 

•was   shown    to  be  worth   twelve   per  Dodds  v.  Hills,  2  Hem.  &  Mil.  424. 

cent,  more;  but  it  was  held  that  as  the  *  Fitchburg  Sav.  Bank  v.  Rice,  124 

owner  had  consented  to  the  sale  the  Mass.  72. 
bank   was   only   chargeable  with   the 

384 


broker's  rights  carrying  stocks  upon  margin.       [§  495. 

gage.i  The  stock  piircliased  is  the  property  of  the  customer,  and 
is  in  effect  pledged  to  the  broker  as  security  for  the  payment  of 
the  advances  made  by  hira  in  the  purchase  of  the  stock.  There- 
fore a  sale  of  the  stock  by  the  broker  at  the  broker's  board,  with- 
out notice,  upon  the  faikire  of  the  customer  to  keep  the  margin 
good,  is  a  conversion  of  the  stock ;  and  evidence  of  a  usage  that 
stocks  so  held  might  be  sold  in  this  manner  is  inadmissible.^ 
Thus,  if  a  stock-broker  undertakes  to  buy  certain  stock  for  a 
customer,  the  latter  advancing  ten  per  cent,  of  the  market  value, 
and  agreeing  to  keep  good  such  proportionate  advance  according 
to  the  fluctuations  of  the  market,  the  result  of  the  agreement,  as 
stated  by  Chief  Justice  Hunt,^  is  as  follows  :  "  The  broker  under- 
takes and  agrees :  1.  At  once  to  buy  for  the  customer  the  stocks 
indicated ;  2.  To  advance  all  the  money  required  for  the  pur- 
chase, beyond  the  ten  per  cent,  furnished  by  the  customer  ;  3. 
To  carry  or  hold  such  stocks  for  the  benefit  of  the  customer  so 
long  as  the  margin  of  ten  per  cent,  is  kept  good,  or  until  notice 
is  given  by  either  party  that  the  transaction  must  be  closed,  —  an 
appreciation  in  tlie  value  of  the  stocks  is  the  gain  of  the  customer, 
and  not  of  the  broker  ;  4.  At  all  times  to  have  in  his  name,  or 
under  his  control,  ready  for  delivery,  the  shares  purchased,  or  an 
equal  amount  of  other  shares  of  the  same  stock  ;  5.  To  deliver 
such  shares  to  the  customer  when  required  by  him,  upon  the  re- 
ceipt of  the  advances  and  commissions  accruing  to  the  broker; 
or,  6.  To  sell  such  shares  upon  the  order  of  the  customer,  upon 
payment  of  the  like  sums  to  him,  and  account  to  the  customer  for 
the  proceeds  of  such  sale.  Under  this  contract  the  customer 
undertakes :  1.  To  pay  a  margin  of  ten  per  cent,  on  the  current 
market  value  of  the  shares  ;  2.  To  keep  good  such  mai'gin  ac- 
cording to  the  fluctuiitions  of  the  market ;  3.  To  take  the  shares 
80  purchased  on  his  order  whenever  required  by  the  broker,  and 

1  Baker   v.  Drake,  66  N.  Y.   518;  N.  S.  428  ;  Colt  v.   Owens,  90  N.  Y. 

Stenton  v.  Jerome,  54  lb.  480;  Vau-  368;  Thompson  v.  Toland,  48  Cal.  99; 

pell   V.  Woodward,  2    Sandf.  (N.  Y.)  AVorthington  v.  Tormey,  34  Md.  182; 

Ch.  143;  iMcNeil  r.  Tenth  Nat.  Bank,  Hatch    v.    Douglas,    48     Conn.    116; 

55    Barb.    (N.  Y.)  59,  overruled    on  i\  C.  12  Rep.  744. 

other  points  in  46  N.  Y.  32o;  Brass  2  Markham  r.  Jaudon,  41  N.  Y.  235, 

V.  Worth,    40    Barb.    (N.   Y.)     648;  overruling  Sterling  j;.Jaudon,  48  Barb. 

Clarke  v.  Meigs,  22  How.  (N.  Y.)  Pr.  (N.  Y.)  459;  Hanks  v.  Drake,  49  lb. 

340;  Morgan  v.  Jaudon,  40  lb.  306;  l«i). 

Read  t;.  Lambert,  10  Abb.  (N.  Y.)  Vv.  »  In  Markham  v.  Jaudon,  supra. 

25  385 


§  496.]       RIGHTS  AND  LIABILITIES  OF  A   PLEDGEE  OF  STOCK. 

to  pay  the  difference  between  the  percentage  advanced  by  him 
and  the  amount  paid  therefor  by  the  broker." 

496.  The  broker  acts  in  a  threefold  relation :  first,  in  pur- 
chasing the  stock  he  is  an  agent ;  then,  in  advancing  money  for 
the  purchase,  he  becomes  a  creditor ;  and,  finally,  in  holding  the 
stock  to  secure  the  advances  made,  he  becomes  a  pledgee  of  it. 
It  does  not  matter  that  the  actual  possession  of  the  stock  was 
never  in  the  customer.  The  form  of  a  delivery  of  the  stock 
to  the  customer,  and  a  redelivery  by  him  to  the  broker,  would 
have  constituted  a  strict,  formal  pledge.  But  this  delivery  and 
redelivery  would  leave  the  parties  in  precisely  the  same  situation 
they  are  in  when,  waiving  this  formality,  the  broker  retains  the 
certificates  as  security  for  the  advance.  The  contract  is  in  spirit 
and  effect,  if  not  technically  and  in  form,  a  contract  of  pledge, 
and  is  governed  by  the  law  of  pledges.^ 

In  Stenton  v.  Jerome,^  the  effect  of  a  contract  for  the  purchase 
of  stock  upon  a  mai'gin  was  carefully  considered  by  the  New 
York  Court  of  Appeals.  The  agreement  between  a  firm  of  stock- 
brokers and  their  customer  provided  that  the  latter  should  fur- 
nish a  specified  margin  as  security,  and  keep  the  same  good 
whenever  called  upon  to  do  so ;  and  in  the  event  of  non-com- 
pliance with  such  demand,  the  brokers  were  authorized  to  close 
the  account  without  notice,  by  purchase  or  sale,  at  public  or 
private  sale,  or  at  the  brokers'  board,  or  otherwise.  In  an  action 
against  the  brokers  by  the  customer  for  a  sale  of  stock  without 
making  demand  for  more  margin,  or  for  payment,  the  court ^  say  : 
"  Under  the  agreement  the  defendants  were  not  obliged  to  carry 
the  stocks  indefinitely.  Whenever  they  desired  to  close  the 
transaction  in  reference  to  any  stocks,  it  was  their  duty  to  tender 
the  certificates  thereof  to  the  plaintiff,  and  demand  payment  for 
them  ;  then,  if  within  a  reasonable  time  he  did  not  take  and  pay 
for  the  stocks,  they  had  a  i-ight  to  sell  them  to  satisfy  their  lien, 

1  Per  Hunt,  C.  J.,  in  Markham  v.  Hanks   v.    Drake,  49    Barb.'  (N.  Y.) 

Jaudon,  41  N.  Y.  235.     See,  however,  186,   Sterling  v.  Jaudon,  48  lb.  459, 

dissenting    opinions    of    Grover    and  and   Schepeler  v.  Eisner,  3  Daly  (N. 

Woodruff,   JJ. ;    Morgan    r.   Jaudon,  Y.),  11,  cannot   be   considered    law; 

40  How.  (N.  Y.)  Pr.  366.  and,  in  fact,  are  overruled  in  Mark- 

^  54  N.  Y.  480,  approved  in  Baker  ham  v.  Jaudon,  supra. 

V.  Drake,  66  N.  Y.  518.     Expressions  ^  pg^  Earle,  C. 
not  in    accord   with   these   cases,    in 

386 


broker's  rights  carrying  stocks  upon  margin.    [§§  497,  498. 

after  first  giving  her  notice  of  the  time  and  place  of  sale.  There 
was  only  one  contingency  in  which  they  could,  under  the  agree- 
ment, sell  the  stock  without  notice,  and  that  was,  if  the  plaintiff's 
margin  fell  below  twenty  per  cent,  and  she  failed,  upon  demand, 
to  make  the  margin  good ;  then,  by  the  express  stipulation  in  the 
agreement,  they  could  sell  without  notice.  Here  no  demand  was 
made  for  more  margin,  and  hence  there  was  no  right  to  sell  on 
account  of  the  insufficiency  of  the  margin  ;  and  there  was  no 
tender  of  the  stock,  and  no  demand  that  the  plaintiff"  should  pay 
for  the  same  ;  and  hence  the  defendants  had  no  right  to  sell  for 
the  purpose  of  closing  their  accounts  with  her.  The  sale  of  the 
stocks  was,  therefore,  wrongful  and  unauthorized,  and  rendered 
the  defendants  liable  to  the  plaintiff  for  such  damage  as  the  rules 
of  law  entitled  her  to." 

497.  There  is  a  distinction  between  the  carrying  of 
stocks  upon  a  margin  and  a  like  carrying  of  executory 
contracts  for  the  future  delivery  of  grain  or  other  like  prop- 
erty ;  and  the  ground  of  the  distinction  is,  that  while  a  broker 
may  well  be  considered  a  pledgee  of  the  stocks  which  he  has 
purchased  for  his  customer,  because  he  has  actual  possession  of 
them,  the  holder  of  an  executory  contract  for  the  delivery  of 
grain  cannot  be  so  considered,  because  he  has  neither  the  actual 
possession  of  the  grain  nor  the  constructive  possession  of  it,  by 
means  of  a  warehouse-receipt  or  bill  of  lading.  Therefore,  it  is 
held  that  if  a  commission  merchant  or  broker  contracts  in  his 
own  name  for  the  purchase  of  grain  for  a  customer,  to  be  de- 
livered at  a  future  time,  the  latter  making  an  advance  on  the 
purchase,  and  agreeing  to  keep  the  margin  good  up  to  the  time 
of  delivery,  the  relation  of  pledgor  and  pledgee  is  not  created, 
so  as  to  require  a  notice  of  the  time  and  place  of  sale  of  the 
grain,  on  the  customer's  failure  to  keep  up  the  margins.^ 

498.  A  different  view  of  the  contract  of  a  stock-broker 
and  his  customer  in  such  case  is  taken  by  the  Supreme 
Court  of  Massachusetts  in  a  recent  decision.^  The  contract  is 
not  regarded  as  creating  the  relation  of  pledgor  and  pledgee  be- 
tween the  parties,  but  as  being  merely  an  executory  agreement, 

1  Corbett  v.  Underwood,  83  111.  324.         ^  Covell    v.   J^oud,    134    Mass.  — ; 

S.C.  IG  Cent.  L.J.  4  71. 
387 


§  498.]      RIGHTS  AND   LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

under  which  the  broker  may,  upon  the  default  of  the  customer, 
sell  the  stock  without  notice.  In  the  case  before  the  court  a 
stock-broker  had  purchased  certain  shares  of  stock  for  a  customer, 
under  an  agreement  to  carry  the  stock  for  him  upon  the  payment 
of  a  certain  "  margin,"  which  the  customer  was  to  keep  good. 
The  stock  having  declined,  the  broker  requested  the  customer  to 
make  his  margin  good  ;  and  the  latter  failing  to  do  so,  the  broker, 
after  a  few  days,  sold  the  stock  at  the  brokers'  board  in  New 
York,  at  the  market  price,  without  notice.  The  sale  left  the 
customer  indebted  to  the  broker,  but  the  latter  made  no  demand 
for  the  payment  of  the  balance  due  him  till  some  four  months 
afterwards,  when,  the  stock  having  risen  in  price  above  that 
originally  paid  for  it,  the  customer  demanded  the  stock,  and 
offered  to  pay  the  balance  of  the  purchase  money  and  interest. 
In  a  suit  by  the  customer  against  the  broker  for  tlie  value  of  the 
stock  the  trial  court  held  that  he  was  entitled  to  recover,  upon 
the  ground  that  the  relation  of  the  parties  was  that  of  pledgor 
and  pledgee,  and  that  the  usage  of  brokers,  which  was  proved,  to 
sell  stock  so  held  at  the  brokers'  board,  as  soon  as  the  margin  is  ex- 
hausted, without  notice,  was  illegal.  Exceptions  to  these  rulings 
were  sustained  by  the  Supreme  Court.  Mr.  Justice  Devens, 
delivering  the  opinion,  said :  "  The  relation  of  the  parties  ex- 
isted by  force  .of  a  mutual  and  dependent  contract,  by  which  the 
defendants  agreed  to  purchase,  and  hold  or  convey  for  the  plain- 
tiff, a  certain  number  of  shares  of  stock,  the  plaintiff  paying  a 
certain  sum  of  money  at  the  time,  and  agreeing  to  pay  interest 
on  the  sums  advanced  by  the  defendants,  and,  in  case  the  stock 
depreciated,  to  make  Avhat  is  termed  '  a  margin '  of  ten  dollars 
per  share  in  the  cost  of  the  market  price  of  the  stock,  as  that 
might  change  from  time  to  time.  When  the  plaintiff  failed  to 
perform  his  part  of  the  contract,  by  making  the  necessary  ad- 
vances upon  demand,  the  stock  having  rapidly  depreciated,  in 
value,  he  has  no  ground  of  complaint  that  the  defendants  ceased 
to  hold  and  carry  it  for  him,  and  thereafter  disposed  of  it. 

"  We  are  aware  that  transactions  of  this  nature  have  been  held 
sometimes  to  make  the  broker  an  agent  who  pui'chases  the  stock 
as  such  agent  for  the  customer,  and  who  holds  it  thereafter  as  a 
pledgee  for  the  money  advanced  for  its  purchase.  But  in  Wood 
V.  Hayes, ^  it  was  held  that  a  broker  who  advanced  money  to  buy 

^  15  Gray  (Mas?.),  375.     There  seems  to  be  nothing  in  this  case  to  show 

388 


broker's  eights  carrying  stocks  upon  margin.     [§  499. 

stock  for  another,  and  held  it  in  his  own  name,  might,  so  long  as 
he  had  not  been  paid  or  tendered  the  amount  of  his  advances, 
pledge  it  as  security  for  his  own  debt  to  a  third  person,  without 
making  himself  liable  to  an  action  by  his  employer  ;  and  this  upon 
the  ofronnd  that  the  contract  was  conditional  to  deliver  the  shares 
upon  the  payment  of  the  money.  It  cannot  make  any  difference 
that,  in  this  case,  a  small  portion  of  the  money  necessary  for  the 
original  purchase  was  advanced  by  the  customer." 

499.  This  decision  introduces  a  new  doctrine  as  regards 
the  relation  of  a  stock-broker  and  customer,  which  has  heretofore 
always  been  regarded  as  that  of  pledgor  and  pledgee.  And  such, 
in  fact,  is  the  relation,  in  all  ordinary  cases  where  the  broker  has 
purchased  stocks  for  a  customer,  and  carries  them  for  him  upon 
the  payment  of  a  portion  of  the  purchase-money.  The  broker 
holds  the  stock  as  collateral  security  for  the  remainder  of  the 
purchase-money,  and  should  be  subject  to  the  established  rules 
of  law  governing  the  contract  of  pledge.  The  case  is  wholly 
different  from  that  where  a  broker  simply  makes  a  contract  with 
another  for  the  future  delivery  of  grain,  which  is  not  delivered 
into  the  broker's  actual  possession.  In  the  latter  case  there  is  no 
pledge,  for  no  property  of  the  customer  is  delivered  to  the  broker. 
This  distinction  was  pointed  out  in  the  Illinois  case,  in  which  it 
was  decided  that  a  broker  holding  for  a  customer  an  executory 

that  the  contract  between  the  broker  of  payment,  of  the  debt  secured, 
and  the  customer  was  not  regarded  by  The  return  of  the  pledge  cannot  be 
the  court  as  a  pledge.  The  statement  asked  for,  except  upon  the  condition 
of  facts  clearly  made  it  such;  for  it  of  payment  of  the  debt  secured.  A 
appeared  that  the  broker  bought  the  sale  or  pledge  of  the  property  by  the 
stocks,  and  that  afterwards  the  parties  pledgee  does  not  amount  to  a  conver- 
settled  an  account,  and  found  a  certain  sion  by  him,  unless  the  pledgor  tenders 
balance  due  from  the  customer  to  the  payment  of  the  debt  and  demands  the 
broker,  for  which  the  customer  gare  his  return  of  the  property.  In  this  case 
promissory  note,  and,  as  security  for  before  the  court  the  debt  was  neither 
its  payment,  the  broker  acknowledged  paid  nor  tendered.  The  customer, 
that  he  held  certain  shares  of  stock,  therefore,  had  no  right  of  action 
The  statement  by  the  court  that  the  against  the  broker.  Besides,  on  gen- 
contract  was  strictly  conditional,  to  eral  principles  governing  the  contract 
deliver  so  many  shares  on  payment  of  of  pledge,  the  broker  had  the  right 
80  much  money,  is  not  inconsistent  to  pledge  the  stock  for  a  debt  of  his 
with  this  view.  The  pledgee's  con-  own,  to  the  extent  of  his  advances 
tract  is  always  conditional,  to  deliver  upon  it.  See  §§  331,  418-423. 
the  pleilge  on  the  payment,  or  tender 

389 


§  500.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

contract  foi"  the  future  delivery  of  corn  which  never  came  into 
his  possession  did  not  stand  in  the  relation  of  a  pledgee  of  his 
customer.  The  court  in  that  case  say  that  if  the  corn  purchased 
had  been  delivered  to  the  broker,  and  he  had  paid  for  the  same, 
and  held  the  possession  of  it  as  security  for  the  money  advanced, 
then  it  might,  with  propriety,  be  claimed  that  the  relation  of 
pledgor  and  pledgee  existed,  and  that  notice  of  the  time  and 
place  of  sale  should  be  given.^ 

500.  But  a  broker  cannot  recover  for  a  purchase  which  is 
fictitious,  or  which  he  has  charged  to  his  customer  at  an  en- 
hanced price.  In  such  case  he  fails  to  perform  the  contract  of 
purchase.^  A  usage  of  brokers  that  one,  on  receipt  of  an  order 
to  buy  stocks  on  a  margin,  may  assume  the  contract  himself,  in- 
stead of  making  it  with  a  third  person,  is  illegal.  The  broker 
has  no  right  to  put  himself  in  a  position  antagonistic  to  the  in- 
terests of  his  employer.  He  cannot  make  himself  both  buyer 
and  seller.  A  broker  purchased  for  a  customer  certain  United 
States  Bonds,  under  an  agreement  that  the  broker  should  ad- 
vance the  purchase-price  and  should  carry  the  original  bonds 
purchased  at  a  specified  rate  of  interest.  In  the  purchase  the 
broker  overcharged  for  a  part  of  the  bonds,  and  for  another  part 
charged  a  commission  for  buying  and  received  a  commission  for 
selling.  Before  the  maturity  of  the  loan,  the  broker  sold  the 
bonds  without  the  knowledge  of  the  customer.  The  latter  made 
a  payment  on  account  of  the  supposed  loan.  At  the  maturity  of 
the  loan  the  broker  demanded  payment  of  the  customer,  and 
notified  him  that  in  case  of  default,  he  would  be  sold  out.  Pay- 
ment was  not  made  and  the  broker  thereupon  sold  other  bonds 
of  a  like  amount.  In  an  action  by  the  customer  to  recover  the 
money  he  had  paid  on  this  transaction,  the  broker  set  up  a  coun- 
ter-claim for  a  deficiency  arising  on  such  sale.  It  was  held  that 
the  counter-claim  was  properly  rejected  ;  that  substantial  per- 
formance of  his  contract  was  a  condition  precedent  to  the  bro- 
ker's right  of  recovery,  while  in  essential  elements  he  had  not 
performed  it.^ 

1  §  497;  Corbett  r.  Underwood,  83  Mass.  285;  Farnswortb  v.  Hemmer,  1 
111.  324,  327.  Allen  (Mass.),  494. 

2  Commonwealth    v.    Cooper,    130         s  Levy  v.  Loeb,  85  N.  Y.  365.     Mr. 

Justice  Finch,  delivering  the  opinion 

390 


RIGHT  TO  USE  AND  HYPOTHECATE  PLEDGED  STOCK.        [§  501. 


In  a  subsequent  suit  by  the  customer  against  the  broker  to 
recover  the  moneys  he  had  paid  in  this  transaction,  it  was  held 
that  upon  obtaining  knowledge  of  the  facts  he  was  entitled  to 
repudiate  the  purchase  and  to  recover  back  the  moneys  paid.^ 

V.  His  Right  to   Use  and  Hypothecate  Pledged  Stock. 

501.  Authority  to  use  collateral  stock.  —  In  the  absence  of 
an  agreement  on  the  part  of  the  pledgor,  either  express  or  im- 


of  the  court,  said:  "  The  contract  was 
not  merely  for  the  loan  of  so  much 
money-  That  was  but  a  single  ele- 
ment in  an  entire  and  much  broader 
agreement.  The  defendants  were  to 
buy  the  bonds  as  agents  of  the  plain- 
tiffs. They  were  to  make  the  pur- 
chase in  that  capacity,  with  the  skill 
and  ability  which  their  business  and 
experience  indicated,  and  in  entire 
good  faith  to  their  clients,  without 
any  adverse  or  hostile  interest;  and 
the  identical  bonds  thus  bought  they 
agreed  to  carry,  advancing  the  money 
for  that  purpose,  and  holding  the 
bonds  as  collateral.  That  contract 
was  not  performed  by  the  defendants 
in  any  of  its  essential  elements.  They 
did  not  buy  for  their  clients  in  good 
faith  as  agents,  but  on  the  contrary, 
buying,  without  disclosing  their 
agency,  sought  to  transfer  the  bonds 
to  the  plaintiffs  at  a  larger  price,  con- 
cealing the  profit  intended  to  be  real- 
ized. They  broke  their  contract  by 
taking  commissions  from  both  sides. 
They  broke  it  again  by  not  carrying 
the  original  bonds  as  agreed,  and  the 
deficiency  upon  which  they  rely 
sprang  from  a  sale  of  their  own 
bonds  and  not  plaintiffs'.  Not  only 
was  there  thus  a  total  failure  to  per- 
form on  the  part  of  defendants,  but 
it  is  entirely  possible  that  the  sale 
which  they  did  make  of  the  original 
bonds,  brought  their  full  cost  and  left 
no  deficiency.  The  defendants  choose 
not  to  disclose  either  the  date  or  terms 
of  that  sale.     Doing   so   they  cannot 


sell  their  own  bonds  at  a  sacrifice  and 
claim  that  deficiency  of  the  plaintiffs. 
The  rule  might  be  otherwise  if  the 
defendants  had  not  specially  agreed 
to  carry  the  original  bonds.  It  is  that 
fact  as  found  by  the  trial  judge,  which 
is  fatal  to  the  counter-claim  alleged. 
The  agreements  were  mutual  and  the 
acts  to  be  done  concurrent.  Since  no 
directions  to  sell  the  bonds  were  given 
l)y  plaintiffs  upon  the  expiration  of 
the  contract  by  the  lapse  of  the  stipu- 
lated time,  it  was  the  duty  of  the  de- 
fendants to  deliver  the  original  bonds 
which  had  been  carried  at  the  price 
actually  and  in  truth  paid  for  them, 
and  the  duty  concurrently  of  plaintiffs 
to  pay  that  price  with  the  interest. 
The  defendants,  therefore,  could  not 
put  the  plaintiffs  in  default  without  a 
tender  of  performance  or  at  least  proof 
of  a  readiness  and  willingness  to  per- 
form. No  such  proof  was  given.  No 
bonds  were  tendered.  The  original 
bonds  could  not  be,  since  the  brokers 
had  sold  them  by  their  own  unauthor- 
ized act  and  rendered  their  delivery 
impossible.  They  did  not  even  offer 
similar  bonds  at  the  price  actually 
paid,  but  demanded  a  greater  one. 
There  was  no  element  of  performance 
or  readiness  to  perform  in  the  case. 
Not  a  single  stipulation  of  the  contract 
was  fairly  and  in  good  faith  fulfilled, 
and  no  valid  counter-claim  was  estab- 
lished." 

1  Levy  V.  Loci),  89  N.  Y.  386;  S.  C. 
15  N.  Y.  Weekly  Dig.  17G,  reversing 
S.  C.  15  J.  &  S.  CI. 
391 


§  502.]       RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF   STOCK. 

plied,  the  pledgee  has  no  right  to  use  a  thing  held  in  pledge.^ 
A  general  authority  to  a  creditor  holding  corporate  stock  as  col- 
lateral security  "  to  use,  transfer,  or  hypothecate  the  same,"  at 
his  option,  he  being  required,  on  payment  or  tender  of  the  amount 
of  the  loan,  to  return  an  equal  quantity  of  the  stock,  but  not  the 
specific  stock  deposited,  authorizes  the  pletlgee  to  sell  it  for  his 
own  benefit  before  maturity ;  and  such  a  sale  is  not  a  conversion 
of  the  stock  for  which  an  action  will  lie.^  The  object  of  such  a 
clause  is  to  enable  the  creditor,  if  he  finds  it  inconvenient  to  carry 
the  loan,  to  obtain  the  money  upon  the  stock,  by  sale  or  other- 
wise. It  was  doubtless  an  inducement  to  him  to  make  the  loan. 
In  selling  the  stock,  by  virtue  of  the  contract,  he  simply  took 
upon  himself  the  burden  of  returning  to  the  debtor,  upon  de- 
mand, when  the  loan  should  be  made,  the  same  quantity  of  stock. 

602.  Authority  in  the  pledgee  of  stock  to  hypothecate  it 
for  his  own  debts  may  be  inferred  from  the  circumstances 
of  the  transaction,  and  the  course  of  dealing  between  the  par- 
ties. Thus,  a  broker  having  bought  gold  for  a  customer,  upon 
his  agreement  to  furnish  a  margin  of  ten  per  cent,  for  the  accom- 
modation of  the  latter,  accepted  certain  stock  instead  of  money  ; 
and  an  intent  that  the  broker  should  use  the  stock  as  he  might 
have  used  the  money  was  inferred.^  In  a  conflict  of  testimony  as 
to  the  broker's  authority  to  use  the  stock,  it  is  within  the  prov- 
ince of  the  jury  to  decide  what  the  contract  between  the  parties 
was  ;  and  evidence  may  be  given  to  show  that,  in  previous  trans- 
actions between  the  parties,  the  broker  had,  with  the  knowledge 
of  the  customer  and  without  objection  on  his  part,  hypothecated 
stock  deposited  for  a  margin.^ 

Parol  evidence  of  an  agreement,  made  at  the  time  of  a  pledge 
of  stock  of  a  corporation,  that  the  pledgee  might  use  the  stock,  is 
inadmissible  when  the  pledgee  has  given  a  receipt  for  the  stock, 
stating  that  he  holds  it  as  collateral  security,  and  providing  that 
he  may  sell  "  on  one  day's  notice."     The  tendency  of  such  evi- 

1  Lawrence  f.  Maxwell,  53  N.Y.  19.  ^  Lawrence   v.  Maxwell,   58    Barb. 

2  Ogden  V.  Lathrop,  65  N.  Y.  158,  (N.  Y.)  511;    6  Lans.  4G9;  53  N.Y. 
reversing  1   Sweeny,   643;  3  J.  &  S.  19;  S.  C.  64  Barb.  102;  Hope  ;;.  Law- 
73,   where   it  was    thought   that   the  rence,  1  Hun  (N.  Y.),  317;  Chamber- 
power  "to  use,"  &c.,  did  not  authorize  lain  v.  Greenleaf, 4  Abb.  (N.  C).  178. 
a  sale.  *  Lawrence  v.  Maxwell,  supra. 

892 


RIGHT  TO  USE  AND  HYPOTIIKCATE  PLEDGED  STOCK.      [§§  503,  504. 

dence  would  be  to  show  that  the  contract  made  wiien  the  stock 
was  pledged  was  different  from  that  set  forth  in  writing  at  the 
time.^ 

503.  A  general  custom  that  a  broker  may  pledge  his  cus- 
tomer's stock  for  the  purpose  of  raising  money  to  carry  it, 
is  valid. ^  It  is  not  unreasonable  that  a  broker  who  is  carrying 
stock  for  a  customer  upon  a  margin,  or  small  payment  by  him, 
should  have  the  right  to  use  the  stock  by  way  of  pledging  it  for 
the  purpose  of  enabling  him  to  carry  the  stock  for  the  customer. 
Probably  this  is  the  general  custom  in  such  transactions,  and  a 
knowledge  of  such  custom  would  be  imputed  to  one  who  pur- 
chases stock  of  a  broker  to  be  carried  in  this  manner. 

Authority  in  the  pledgee  to  sell  stock  held  in  pledge  is  incon- 
sistent with  the  contract  of  pledge,  and  a  custom  or  usage  for  a 
broker  holding  stock  in  pledge  to  sell  it  will  not  avail  to  vary  the 
terms  of  the  implied  agreement.^  The  contract  of  pledge  recog- 
nizes the  general  property  of  the  bailor  and  his  right  to  redeem 
and  have  the  thing  pledged.  A  custom  or  usage  for  a  pledgee  to 
sell  the  thing  pledged  is  not  consistent  with  the  contract  because 
such  sale  would  put  it  out  of  his  power  to  return  it  to  the  pledgor 
upon  payment  of  the  debt  secured. 

504.  But  if  a  broker  pledges  his  principal's  stock  to  a 
bank  for  a  specific  loan,  and  the  bank  is  informed  of  the 
ownership  of  the  stock,  and  of  the  purpose  for  which  it  is  ob- 
tained, the  stock  is  not  subject  to  a  general  banker's  lien  for 
moneys  subsequently  borrowed  by  the  brokers  from  the  bank. 
A  tender  by  the  owner  of  the  stock  made  with  a  view  to  set- 
tling the  matter  without  suit,  the   bank   claiming  a  lien  upon 

^  Fay  V.  Gray,  124  Mass.  500.  in  this  respect  by  payini^  for  his  stock  in 

^  Vanliorn    v.    Gilboutrh    (Sup.    Ct.  full;  but  where,  as  here,  he  only  pays 

Pa.),  21  Am.  Law  Reg.  N.  S.  171.    The  a  small  percentage  of  its  value,  while 

referee  whose  conclusions  were  adopted  his    agent,  the  broker,  musit  provide 

by  the  Supreme  Court,  said:  "  I  can  for  the  balance,  it  would  not  seem  un- 

perceive  no  real  objection  to  the  valiil-  reasonable,  that  the  broker  should  for 

ity  of  a  general  usage  that  a  broker  that  purpose  pledge  it  as  collateral." 

may  use  his  customer's  stock  as  col-  As   to  the    effect  of  stock    exchange 

lateral   to  carry  it  for  the  customer,  usages  in   general,  see  note   to   above 

Such  usage  contravenes  no  statute  or  case  by  Francis  A.  Lewis,  Jr.,  Esq., 

princi()le  of  public  policy.     The  cus-  pp.  176-181. 
tomcr  can,  of  course,  avoid  all  trouble         ^  Lawrence  v.  I\L'ixwell,  53  N.  Y.  19 

393 


§  505.]  RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

the  stock  for  subsequent  loans,  is  not  conclusive  upon  him  or  his 
assignee  as  an  admission  that  the  bank  had  a  lien  on  the  stock 
for  the  amount  so  tendered.^ 

505.  The  use  which  the  "pledgee  may  make  of  the  property 
pledged  must  be  consistent  with  the  general  ownership  of 
the  pledgor,  and  consistent  with  his  ultimate  right  to  redeem. 
The  right  to  use  the  pledge  ceases  the  instant  the  debt  is  paid  or 
tendered,  and  the  creditor  must  at  his  peril  be  in  condition  to 
restore  the  property  to  the  debtor.^  "  Conceding  the  right  to  use 
the  stock  pledged,  by  way  of  hypothecation  or  otherwise,  as 
claimed,  and  that  it  was  at  the  time  of  the  tender  and  demand 
lawfully  out  of  the  actual  possession  of  the  defendant,  it  was  his 
duty  at  once  to  regain  the  possession  and  restore  the  same  to  the 
plaintiff.  A  neglect  or  refusal  to  do  so  gave  to  the  plaintiff  an  ac- 
tion as  for  a  conversion  of  the  property.  It  is  immaterial  whether 
the  stock  was  hypothecated  by  the  defendant  upon  a  loan  of 
money  for  the  benefit  of  plaintiff's  transactions  or  for  his  own 
purposes.  In  either  case  the  duty  and  the  obligation  were  the 
same.  The  defendant  conceded  his  inability  to  redeem  the  stock 
from  his  pledge  or  hypothecation,  so  that  it  was  lost  to  the  plain- 
tiff by  the  act  of  the  defendant,  which  was  not  a  use  consistent 
with  a  pledge,  or  the  legal  rights  of  the  pledgor.  It  was  not  a 
mere  temporary  use  of  the  pledge.  No  use  of  a  pledge  which 
could  be  authorized  consistent  with  such  a  bailment  could  justify 
such  a  dealing  with  it  as  to  destroy  the  property  or  deprive  the 
general  owner  of  his  property  in  it.  If  the  pledgee  may  use  the 
thing  pledged  he  must  do  so  at  his  peril,  and  so  use  it,  as  not  to 
affect  the  ultimate  right  and  ability  of  the  pledgor  to  have  it 
again,  when  the  lien  shall  be  discharged.  It  follows  that  upon 
the  undisputed  facts  in  this  case  the  evidence  offered  and  rejected 
was  wholly  immaterial,  for  at  the  time  of  the  demand  and  the 
refusal  to  deliver  the  stock  pledged,  the  lien  of  the  defendant  was 
discharged,  the  relation  of  pledgor  and  pledgee  had  ceased  to 
exist,  and  the  right  of  the  defendant  further  or  longer  to  use  or 
detain  the  stock  was  gone."  ^ 

1  Talmadge   v.    Third     Nat.    Bank         ^  Lawrence   v.  Maxwell,  53    N.  Y. 
(Court   of  Appeals,  March  6,  1883),     19. 

16  N.  Y.  Weekly  Dig.  487.  s  Lawrence  v.  Maxwell,  supra,  per 

Allen,  J, 

394 


RIGHT  TO  USE  AND  HYPOTHECATE  PLEDGED  STOCK.      [§§  506-508. 

506.  If  however  there  is  an  agreement  or  understanding 
that  a  broker  may  hypothecate  stocks  which  he  is  carrying 
for  a  customer  upon  a  margin,  according  to  the  usual  course  of 
business,  such  use  of  them  does  not  of  itself  amount  to  a  conver- 
sion of  them.^ 

507.  The  pledgor  may  treat  as  a  conversion  a  transfer  of 
a  certificate  of  stock  as  collateral  security  by  the  pledgee 
to  a  creditor  of  his  own  in  the  absence  of  specific  authority  ; 
and  the  fact  that  the  pledgee  had  a  greater  number  of  shares 
standing  to  his  credit  on  the  books  of  the  company  at  all  times 
during  the  transaction,  is  immaterial.  The  pledgor  may  recover 
the  market  value  of  the  stock  at  the  time  of  the  conversion. ^  If, 
however,  a  pledgee  transfer  the  collateral  stock  in  such  a  way 
that  he  retains  control  of  it  and  is  able  to  deliver  it  at  once  when- 
ever the  pledgor  should  call  for  it,  there  is  no  conversion  of  it. 
Such  was  the  case  where  the  pledgee  assigned  the  collateral 
stock  to  third  persons,  in  order  not  to  injure  his  credit  by  appear- 
ing to  own  too  much  of  it,  taking  back  from  the  transferees  as- 
signments in  blank,  so  that  the  stock  remained  actually  in  his 
control  and  I'eady  for  delivery  to  the  owner.  The  pledgor's 
rights  were  not  violated  or  injuriously  affected.^ 

And  such  also  was  the  case  where  a  pledgee  of  corporate  shares 
transferred  them  to  another  person  to  hold  for  him  in  order  to 
protect  himself  against  personal  liability.  There  was  no  real 
conversion  of  the  stock  by  the  pledgee  because  by  such  transfer 
he  did  not  apply  it  to  his  own  use.  He  did  not  exercise  any 
dominion  over  it  in  defiance  of  the  rights  of  the  owner.  He  put 
it  into  the  hands  of  a  third  person  to  hold  for  him,  in  order  that 
what  was  intended  for  a  security  might  not  be  a  burden.  The 
stock  remained  under  his  control.* 

508.  Return  of  identical  stock.  —  A  broker  carrying  stock 
upon  a  margin,  according  to  the  usual  custom,  is  not  bound  to 
keep  the  stock  separate  from  other  stock  of  the  same  kind  owned 
by  himself,  but  only  to  keep  in  possession  and  read}'-  for  delivery 

1  Chamberlain  v.  Greenleaf ,  4  Abb.         «  Day  v.  Holmes,  103  Mass.  306. 
(N.  Y.)  N.  C.  178.     See  §  503.  *  Heath    v.   Griswold,  (C  C.  Vt., 

2  Fay  V.  Gray,  124  Mass.  500.  1881)  5  Fed.  Rep.  573. 

395 


§  508.] 


RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 


on  demand  an  amount  of  stock  equal  to  that  purchased.^  Ordi- 
narily, a  pledgor  of  personal  property  is  entitled  to  have  the 
specific  property  pledged  returned  to  him  upon  payment  of  the 
debt,  and  cannot  be  compelled  to  accept  other  property  of  the 
same  kind  and  equal  value  in  place  of  it ;  but  shares  in  a  cor- 
poration stand  upon  a  different  footing,  because  one  share  rep- 
resents the  same  interest  in  the  business  of  the  corporation  that 
another  does,  and,  all  the  shares  being  of  equal  value,  there  can 
be  no  reason  for  preferring  one  from  another,  or  for  distinguish- 
ing one  from  another.^  The  reasons  for  this  distinction  are 
obvious.  Two  visible,  tangible  chattels,  though  apparently  pre- 
cisely similar,  may  yet,  in  fact,  be  of  different  values.  Moreover, 
the  owner  of  a  specific  article  of  personal  property  may  attach  a 
peculiar  vakie  to  it  beyond  the  value  of  other  articles  of  a  pre- 
cisely similar  kind ;  and,  having  pledged  it,  he  cannot  be  com- 
pelled to  take  back  any  other  article  of  the  same  kind  and  equal 
value,  in  lieu  of  that  which  was  converted.^ 

For  the  same  reason  it  would  seem  that  a  pledgee  of  negotiable 
bonds  of  a  private  or  municipal  corporation,  or  of  government 


1  Horton  v.  Morgan,  19  N.  Y.  170; 
Gruman  v.  Smith,  81  N.  Y.  25;  S.  C. 
9  Rep.  748;  Levy  v.  Loeb,  15  J.  &  S. 
61  -,8.0.6  Duer,  56;  Thomjjson  v.  To- 
land,  48  Cal.  99;  Allen  v.  Dykers,  3 
Hill,  593  ;  Hardy  v.  Jaudon,  1  Robt. 
(N.  Y.)  261 ;  Gilpin  v.  Howell,  5  Pa.  St. 
41;  Stewart  (;.  Drake,  46  jST.  Y.  449,  per 
Allen,  J.  ;  Worthington  v.  Torniey, 
34  Md.  182;  Chamberlain  v.  Green- 
leaf,  4  Abb.  (N.  Y.)  N.  C.  178;  Genin 
V.  Isaacson,  6  N.  Y.  Leg.  Obs.  213; 
Salters  v.  Genin,  7  Abb.  (N.  Y.)  Pr. 
193;  S.  C.  3  Bosw.  250;  Taussig  v. 
Hart,  58  JST.  Y.  425;  i\  C.  49  lb.  301. 

2  Atkins  V.  Gamble,  42  Cal.  86; 
Hawley  i:  Brumagim,  33  Cal.  394. 

3  Per  Crockett,  J.,  in  Atkins  v. 
Gamble,  42  Cal.  86,  101,  said:  "  It  is 
impossible  that  any  sane  person  should 
have  centered  his  affections  upon  a 
particular  stock  certificate,  or  that  any 
violence  could  be  done  to  his  feelino-s 
by  requiring  him  to  accept  another 
cei:tificate  of  preciselv  similar  charac- 

396 


ter  in  lieu  of  it.  His  own  certificate 
was  only  the  evidence  that  he  owned 
an  undivided  interest  in  the  capital 
and  business  of  the  corporation.  An- 
other certificate  of  the  same  kind,  for 
the  same  amount  of  stock,  would  en- 
title him  to  precisely  the  same  rights 
as  the  former  certificate.  Each  would 
be  a  precise  equivalent  of  the  other, 
and  it  is  certain  he  could  sutler  no 
pecuniary  loss  by  the  transaction; 
whilst  the  nature  of  the  pi'operty,  or 
rather  of  his  interest  in  it,  forbids  the 
idea  that  it  could  be  the  object  of  per- 
sonal attachment  or  have  a  peculiar 
value  in  his  estimation,  as  contradis- 
tinguished from  any  other  equal  num- 
ber of  shares  in  the  same  company." 

There  may  V)e  a  stipulation  in  a 
pledge  of  stock  expressly  excusing  the 
pledgee  from  returning  the  identical 
certificate.  Hardy  r.  J.iudon,  1  Robt. 
(N.  Y.)  261.  But  such  a  stipulation 
is  only  useful  by  way  of  abundant 
caution. 


RIGHT  TO  USE  AND  HYPOTHECATE  PLEDGED  STOCK.  [§  509. 

bonds,  would  not  be  required  to  retain  the  identical  bonds  depos- 
ited with  him,  if  he  has  always  had  other  bonds  of  precisely  the 
same  kind  which  he  could  return  to  the  pledgor  on  demand.^ 


609.  "When  shares  of  stock  are  pledged  without  any 
agreement  that  they  shall  be  kept  separate  from  other  shares 
of  the  same  stock,  and  no  certificate  is  delivered  to  the  pledgee 
expressing  the  trust  upon  its  face,  the  pledgee  may  properly 
have  the  stock  placed  to  his  credit  upon  the  transfer  books  of  the 
company  ;  and  it  does  not  matter  that  he  has  other  shares  of  the 
same  stock,  or  that  he  buys  and  sells  such  stock,  and  is  afterwards 
unable  to  identify  the  shai'es  received  in  pledge,  provided  that 
at  all  times  he  has  shares  of  the  stock  standing  in  his  name  or 
under  his  rightful  and  absolute  control  to  an  amount  equal  to 
the  number  held  in  pledge,  and  is  ready  and  able  at  any  time 
to  redeliver  the  shares  on  payment  of  the  debt  for  which  they 
were  pledged .^      If  he   sells   all   the  stock  standing  in  his  own 


1  Stuart  V.  Bialer,  98  Pa.  St.  80. 

2  Nourse  r.  Prime,  7  Johns.  (N.  Y.) 
Ch.  69;  S.  C.  4  lb.  490;  Allen  v. 
Dvkers.  3  Hill,  (N.  Y.)  593,  affirmed 
7  lb.  497  ;  Gilpin  v.  Howell,  5  Pa.  St. 
41;  Neiler  v.  Kelly,  69  Pa.  St.  409; 
Bojlan  V.  Hu^uct,  8  Nev.  345  ;  Fay 
r.  Gray,  124  Mass.  500;  Wovthington 
V.  Tormey,  34  Md.  182;  Hubbell  v. 
Drexel,  (C.  C.  E.  I).  Pa.)  21  Am.  Law 
Pteg.  45  2  ^^  S. ;  S.  C.  1 1  Fed.  Rep.  1 1 5. 
In  the  latter  case  Butler,  J.,  said  :  "  A 
share  of  stock  is  without  '  ear-marks,' 
and  cannot  therefore  be  distinguished, 
as  has  been  said,  from  others  of  the 
same  corporation  and  issue.  The  certi- 
ficates, bearing  dates  and  numbers,  are 
but  evidence  of  title.  On  payment  of 
debt  the  pldgor  is  entitled  to  a  return 
of  the  number  of  shares  which  the 
pledgee  had  received — nothing  more." 
In  Gilpin  v.  Howell,  supra,  Bell,  J., 
said :  "  It  is  in  general  true,  that 
where  the  pledge  is  distinctive  in  its 
character,  and  therefore  capable  of 
being  recognized  among  other  things 
of  a  like  nature,  or  where  a  mark  is 
set  upon  it  with  a  view  to  its  discrim- 


ination, the  pledgee  is  bound  to  re- 
deliver the  identical  article  pledged, 
and  cannot  substitute  something  of  a 
like  kind  unless  so  authorized  by  the 
contract.  But  I  think  there  is  a  mani- 
fest difference  ex  necessitate  where  the 
thing  pledired,  from  its  very  nature, 
is  incapable,  in  itself,  of  identification, 
if  once  mingled  with  other  things  of 
the  same  kind.  In  such  case,  it  is  the 
duty  of  the  pledgor  to  put  a  mark 
ujjon  it  by  which  it  may  be  distin- 
guished ;  for,  as  is  said  in  Nourse  v. 
Prime,  supra,  if  a  person  will  suffer 
his  property  to  go  into  a  common 
mass  without  making  some  provision 
for  its  identification,  he  has  no  right 
to  ask  more  than  that  the  quantity  he 
put  in  should  always  be  there  and 
ready  for  him.  By  a  just  fiction  of 
law,  that  residuum  shall  be  presumed 
to  be  the  portion  he  put  in." 

The  case  of  Ex  parte  Dennison,  3 
Ves.  552  is  not  in  conflict  with  the  rule 
above  stated,  for  this  case  was  de- 
cided with  reference  to  a  rule  of  the 
Stock  PLxchange  on  this  subject;  and 
nioruuver,  it  is  evident  that  the  [)ledgee 

397 


I 

§  510.]  RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

name,  but  Las  stock  sufficient  to  meet  the  demand  of  the  pledgor 
standing  in  the  name  of  another  person,  but  absolutely  within 
the  pledgee's  control,  he  is  not  liable  for  a  conversion  of  the 
stock. ^ 

If  a  pledgee  of  corporate  shares  be  himself  the  owner  of  other 
shares  in  the  same  corporation,  it  does  not  matter  that,  in  selling 
the  shares  under  a  power  to  satisfy  the  debt,  he  is  unable  to  tell 
whether  the  stock  sold  be  the  identical  shares  delivered  to  him 
as  collateral  security  ;  such  shares  not  being  distinguishable  from 
each  other,  a  sale  of  one  parcel  answers  the  purpose  of  crediting 
the  debtor  with  the  proceeds  of  the  stock,  as  well  as  the  sale  of 
the  specific  shares.^ 

But,  of  course,  if  there  be  different  kinds  of  stock  of  the  same 
corporation,  the  pledgee  is  bound  to  keep  within  his  control,  and 
to  restore  upon  payment,  the  same  kind  of  stock  as  that  received 
in  pledge.  If,  for  instance,  he  has  received  in  pledge  •'  consoli- 
dated" Erie,  he  cannot  fulfil  his  obligation  by  keeping  on  hand 
and  returning  "  converted  "  Erie,  a  stock  of  a  different  kind  and 
value.^ 

510.  But  it  is  essential  that  the  pledgee  of  stock  should 
always  have  enough  of  the  stock  on  hand  ready  for  delivery.* 
In  a  suit  for  the  conversion  of  stock  pledged  by  a  collateral  note, 
which  authorized  the  creditor  to  sell  the  stock  on  the  non-pay- 
ment of  the  note,  the  defendant,  being  a  stock-broker  and  dealer 
in  stock,  offered  to  prove  that  it  was  a  usage  with  stock-brokers 
having  such  collateral  not  to  hold  it  specificalU',  but  to  transfer 
it  by  hypothecation  or  otherwise,  at  pleasure,  and  on  payment  of 
the  debt  to  return  an  equal  quantity  of  the  same  kind  of  stock; 
and  that  this  usage  was  general  and  known  to  the  pledgor. 
Without  determining  what  effect  would  be  due  to  such  proof  in 
the  case  of  a  simple  pledge  as  collateral  security  without  any 
further  agreement,  it  was  held  that  the  evidence  was  inadmis- 
sible, as  tending  to  contradict  the  legal  imj)ort  of  the  note ;  that 

in  that  case  did  not  keep  on  hand  a  ^  Berlin  v.  Eddy,  33  Mo.  426. 

sufficient  number  of  shares  to  enable  ^  Wilson  i\  Liitle,  2  N.  Y.  443. 

him  to  return  the  security  at  any  time  *  Chamberlain  v.  Greenleaf,  4  Abb. 

on  demand.  (N.  Y.)  N.  C.  178;  Horton  v.  Morgan, 

1  Le    Croy   v.    Eastman,    10    Mod.  19    N.   Y.   170;    Taussig  v.  Hart,  58 

499.  lb.  425;  Hardy  t-.  Jaudon,  1  Rjbt.  (N. 

398  Y.)  261,  affirmed,  41  N.  Y.  619. 


RIGHT  TO  USE  AND  HYPOTHECATE  PLEDGED  STOCK.      [§§  511,  512. 

the  parties  having  prescribed  m  the  note  the  terms  of  the  loan 
and  the  conditions  under  which  the  collateral  might  be  disposed 
of,  no  usage  could  be  incorporated  with  the  agreement  of  the 
parties,  so  as  to  make  the  latter  import  a  consent  by  the  debtor 
tiiat  the  creditor  might  use  the  stock  during  the  running  of  the 
loan  the  same  as  if  he  were  the  absolute  owner  of  it.^ 

511.  Moreover  it  is  incumbent  upon  the  pledgee  to  show 
that  he  has  always  had  sufficient  stock  of  the  kind  deposited 
to  enable  him  to  return  it  at  any  time,  for  otherwise  it  might 
happen  that  he  has  made  a  profit  in  selling  the  stock  when  the 
price  was  high,  and  buying  it  again  when  the  price  had  declined. 
The  pledgor  in  that  case  would  be  entitled  to  take  advantage  of 
the  pledgee's  sale  of  the  stock,  although  it  was  wrongful.  There- 
fore if  the  pledgee  has  not  the  identical  certificate  of  stock  which 
was  pledged  to  him,  or  the  stock  issued  to  himself  by  the  corpo- 
ration on  surrender  of  that  certificate,  he  should  be  prepared  to 
show  that  he  has  had  all  the  while  other  shares  of  the  same  stock 
on  hand  sufficient  to  meet  this  and  every  other  obligation  resting 
upon  him  to  deliver  that  stock.  In  a  suit  brought  by  him  upon 
the  debt  secured  by  such  stock,  it  would  seem  tliat  his  inability 
to  return  the  certificate  pledged,  or  the  stock  issued  to  him  by 
the  corporation  upon  a  surrender  of  that  certificate,  would  be 
evidence  tending  to  show  a  conversion  of  the  stock  by  him  ;  and 
that  the  burden  would  be  upon  him  to  show  that  he  had  always 
had  during  the  continuance  of  the  pledge  other  shares  of  the 
same  stock  not  required  to  meet  other  obligations  which  he  could 
have  returned  to  the  pledgor  at  any  time  upon  payment.^ 

512.  When  securities  belonging  to  several  persons  have 
been  rehypothecated  together  as  security  for  a  single  loan,  the 
pledgee  taking  them  should  proceed  pari  passu  in  applying  the 
securities  to  the  satisfaction  of  the  loan,  so  that  each  of  the  sev- 
eral owners  of  the  securities  shall  bear  his  just  proportion  of  the 
common  burden.  If  such  pledgee,  without  notice  of  the  claims 
of  the  true  owners,  sells  the  securities  belonging  to  one,  and 
therefrom  satisfies  the  claim  for  which  he  holds  all  tlie  securities, 
leaving  the  others  undisposed  of,  a  court  of  equity  will  order  the 
remaining  securities  to  be  disposed  of,  and  the  proceeds  applied 

1  Allen  V.  Dykers,  3  Hill  (N.  Y.),  593.  «  See  §§  421,  422. 

39U 


§  512.]      RIGHTS  AND  LIABILITIES  OF  A  PLEDGEE  OF  STOCK. 

in  such  a  manner  that  the  burden  of  the  loan  will  be  borne  in 
equitable  proportions  by  all.^ 

1  Gould  V.  Central  Trust  Co.  6  r.  Boyce,  39  Md.  314;  Gould  r.  Tar- 
(N.  Y.)  Abb.  N.  C.  381  ;  and  see  Cham-  mers'  Loan  &  Trust  Co.  23  Hun  (N. 
berlain  v.  Greenleaf,  4  lb.  178;  Rich     Y.),  322. 

400 


CHAPTER   XIII. 


THE   EIGHTS   OF   A   SURETY. 


I.  His  right  of  subrogation  to  the  creditor's 

securities,  51i-522. 
n.  The    creditor's    equitable   right    to   the 

surety's  securities,  523-533. 


HI.  The  mutual  equitj'  of  co-sureties  to  claim 
the  benefit  of  each  other's  securities, 
634-539. 


I.  His  Right  of  Subrogation  to  the   Creditor's  Securities. 

513.  A  surety  upon  paying  the  debt  of  his  principal  is  sub- 
rogated to  the  benefit  of  any  collateral  security  wbich  the  cred- 
itor liolds  for  the  payment  of  the  debt ;  and  to  the  benefit  of  all 
rights  and  remedies  which  the  creditor  had  against  the  principal 
debtor.^  Tliis  right  is  strictly  one  of  subrogation.  It  arises,  how- 
ever, from  a  natural  equity  and  not  out  of  any  express  or  implied 
contract.^  It  does  not  become  fixed  and  positive  until  the  surety 
has  paid  the  debt.  Before  payment  he  has  no  control  over  the 
creditor's  securities  ;  and  afterpayment  his  right  is  strictly  one  of 
subrogation.  His  claim  arises  only  when  he  has  extinguished 
the  creditor's  claim  by  paying  it.  He  is  then  by  substitijtion 
entitled  to  stand  in  the  creditor's  place,  in  respect  to  the  secu- 
rities held  by  him  for  the  payment  of  the  debt.  The  surety  is 
entitled  to  the  benefit  of  the  creditor's  securities,  though  in  be- 
coming a  surety  he  did  not  rely  upon  them,  or  know  of  their 
existence.^  It  is  immaterial,  also,  whether  the  debtor  placed  the 
securities  in  his  creditor's  hands  at  the  time  when  the  obligation 
was  contracted  or  subsequently.  Neither  does  it  matter  that 
the  surety  became  such  without  any  contract  with  the  principal 
debtor,  and  without  his  knowledge.* 


^  Richardson  v.  Wasliington  Bank, 
3  Mete.  (Mass.)  53C;  Guild  v.  Butler, 
127  Mass.  386;  Johnson  v.  Bartlett,  17 
Pick.  (Mass.)  99;  Murrell  v.  Scott,  51 
Tex.  520;  Sublett  v.  McKinney,  19 
Tex.  438  ;  Jordan  v.  Hudson,  11  Tex. 
83;  Greiner  v.  Greiner,  58  Cal.  115; 
Glazier   v.    Douglass,    32    Coiui.   393, 

26 


398;  Miller  r.  Ord,  2  Binn.  (Pa.)  382; 
Sheldon  on  Subrogation,  §  86. 

2  Hodgson  V.  Shaw,  3  M.  &  K.  183, 
per  Lord  Brougham. 

8  Lake  v.   Brutton,  8  De  G.,  M.  & 
G.  440. 

*  Mathews  v.   Aikin,   1   N.  Y.  595; 
Hughes  V.  Littlefield,  18  Me.  400. 
401 


§  514.]  THE   EIGHTS   OF   A  SURETY. 

A  surety  is  subrogated  to  a  lien  which"  the'  creditor  has  upon 
his  debtor's  propert}'.  Thus  where  a  corporation  lias  a  lien  upon 
the  stock  of  any  stockholder  for  the  payment  of  any  debt  due 
from  him  to  the  corporation,  a  surety  for  such  debt  upon  paying 
it  is  subrogated  to  this  lien.^  If  the  lien  does  not  exist  by  stat- 
ute in  all  cases,  but  depends  upon  the  voluntary  act  of  the  cor- 
poration, unless  the  corporation  has  claimed  the  lieu,  none  exists, 
and  there  is  nothing  to  which  tlie  surety  can  be  subrogated.^ 

In  this  country,  moreover,  the  surety  is  generally  entitled  to 
be  substituted  to  the  creditor  as  to  the  very  debt  itself,  and  to 
have  that  assigned  to  him  ;^  though  in  England  the  judicial  rule 
was  finally  settled  otherwise,  on  the  ground  that  wjjen  the  debt 
has  been  paid  by  the  surety,  it  is  technically  discharged,  and 
therefore  cannot  be  regarded  as  surviving  for  the  benefit  of  the 
surety.^  This  rule  was  applied  to  all  obligations  which  are  ex- 
tinguished by  the  act  of  payment,  such  as  a  bond  or  other  spe- 
cialty, or  a  judgment.  A  similar  rule  has  been  adopted  by  a  few 
courts  in  this  country.^  A  recent  statute  in  England,  however, 
enacts  the  rule  of  equitable  subrogation  to  the  debi.*^ 

One  who  has  become  a  surety  on  the  promise  of  the  principal 
debtor  to  transfer  to  the  creditor  stock  as  collateral  for  the  debt, 
may  afterwards  compel  the  debtor  to  make  such  transfer.^ 

514.  The  foundation  of  this  equity  is  that  any  fund  placed 
by  the  principal  debtor  in  the  hands  of  the  creditor  or  of  any 
surety  is  a  trust  to  be  administered  for  the  benefit  of  all  the  par- 
ties to  the  compact.  In  a  recent  case  before  the  Supreme  Court 
Mr.  Jnstice  Matthews  admirably  stated  the  principle  and  its  ap- 
plication.^ "  Many  sufficient  maxims  of  the  law  conspire  to 
justify  the  rule.  To  avoid  circuity  and  multiplicity  of  actions  ; 
to  prevent  the  exercise  of  one's  right  from  interfering  with  the 
rights  of  others  ;  to  treat  that  as  done  which  ought  to  be  done  ; 

^  Klopp  V.  Lebanon  Bank,  46  Pa.  224;  Hodgson   v.  Shaw,   3   M.  &  K. 

St.  88  ;  Young  v.  Vough,  23  N.  J.  Eq.  183,  190. 

325.  6  As  in  Massachusetts,  Vermont, 

^  Perrine  v.  Mobile  Ins.  Co.  22  Ala.  Alabama,  and  Nevada  ;  bheldon  on 

675.  Subrogation,  §  138. 

»  Sheldon  on    Subrogation,  Sublett  ^  19  &  20  Vic.  c.  97,  §  5. 

V.  McKinney,  19  Tex.  438;  Lumpkin  7  McCoy  v.  Wilson,  58  Ind.  447. 

V.  Mills,  4  Ga.  343.  8  Hampton  v.    Phipps,   2   Supreme 

*  Copis  V.   Middleton,  Turn  &   R.  Ct.  Rep.  622,  624. 
402 


SUBROGATION   TO   HIS   CREDITOR'S   SECURITIES.  [§   615. 

to  require  that  the  burden  shall  be  borne  by  him  for  whose  ad- 
vantiige  it  has  been  assumed  ;  and  to  secure  equality  among  those 
equally  obliged  and  benefited,  are  perhaps  not  all  the  familiar 
adages  which  may  legitimately  be  assigned  in  support  of  it.  It 
is,  in  fact,  a  natural  and  necessary  equity  which  flows  from  the 
relation  of  the  parties,  and  though  not  the  result  of  contract,  is 
nevertheless  the  execution  of  their  intentions.  For,  when  a 
debtor,  who  has  given  personal  guaranties  for  the  performance 
of  his  obligation,  has  further  secured  it  by  a  pledge  in  the  hands 
of  his  creditor,  or  an  indemnity  in  those  of  his  surety,  it  is  con- 
formable to  the  presumed  intent  of  all  the  parties  to  the  arrange- 
ment, that  the  fund  so  appropriated  shall  be  administered  as  a 
trust  for  all  the  purposes,  which  a  payment  of  the  debt  will  ac- 
complish ;  and  a  court  of  equity  accordingly  will  give  to  it  this 
effect.  All  this,  it  is  to  be  observed,  as  the  rule  verbally  requires, 
presupposes  that  the  fund  specially  pledged  and  sought  to  be 
primarily  applied  is  the  property  of  the  debtor,  primarily  liable 
for  the  payment  of  the  debt ;  and  it  is  because  it  is  so  that  equity 
impresses  upon  it  the  trust,  which  requires  that  it  shall  be  ap- 
propriated to  the  satisfaction  of  the  creditor,  the  exoneration  of 
the  surety,  and  the  discharge  of  the  debtor.  The  implication  is 
that  a  pledge  made  expressly  to  one  is  in  trust  for  another,  be- 
cause the  relation  between  the  parties  is  such  that  that  construc- 
tion of  the  transaction  best  effectuates  the  express  purpose  for 
which  it  was  made." 

615.  It  follows  that  if  a  creditor  holding  collateral  secu- 
rity surrenders  it  to  the  principal  debtor  without  the  knowl- 
edge or  consent  of  a  surety  of  the  debt,  he  thereby  discharges 
him  to  the  extent  of  the  value  of  the  property  surrendered.^ 

A  bank  upon  discounting  a  note  received  as  collateral  security 
from  a  surety  an  assignment  of  certain  shares  of  stock  of  a  rail- 
road company,  the  principal  debtor  having  previously  caused  a 

1  Richardson  v.  Washinorton  Bank,  15  N.  H.  119  ;  Sanders  v.  Reed,  12  N. 

3  Met.   (Mas.s.)   536,   540;    Guild    v.  H.  558,  560;  New  London    Bank  v. 

Butler,    127     Mass.    386;    Baker    v.  Lee,  11  Conn.  112 ;  Stearns  ?;.  Bates, 

Briggs,  8  Pick.  (Mass.)  122;   Ameri-  46    Conn.   306;  Stewart  v.  Davis,  18 

can  Bank   v.  Baker,  4   Met.  (Mass.)  Ind.   74;    Pliilbrooks   v.  McEwen,   29 

164;    Chester  v.  Kingston   Bank,   17  Ind.  347;   Springer  v.   Toolhaker,  43 

Barb.  (N.  Y.)  271  ;  S.  C.  16  N.  Y.  336  ;  Me.  381 ;   Cumniings  v.  Litlle,  45  Me. 

New  Hampshire  Sav.  Bank.  v.  Colcord,  183  ;  Kirkpatrick  v.  Ilowk,  80  III.  122. 

403 


§§  516,  517.]  THE   RIGHTS   OF  A   SURETY. 

certificate  of  the  shares  to  be  issued  to  the  surety.  Subsequently 
the  raih'oad  company  was  consoKdated  with  another  company, 
and  the  former  company  issued  to  its  stockholders  coupon  bonds 
to  the  full  amount  of  its  capital  stock,  and  the  consolidated  com- 
pany also  issued  one  share  of  new  stock  for  each  share  of  the  old 
stock.  At  this  time  the  collateral  stock  stood  upon  the  books  of 
the  company  in  the  name  of  the  surety.  The  transfer  to  the 
bank  was  executed  by  an  indorsement  of  the  certificate  in  blank, 
and  no  new  certificate  was  taken  out  by  the  bank.  The  bank, 
however,  allowed  the  principal  debtor  to  receive  the  bonds  issued 
upon  the  collateral  stock  without  obtaining  the  consent  of  the 
surety.  In  an  action  by  the  bank  against  the  surety  upon  the 
note,  it  was  held  that  the  bank  having  authorized  the  railroad 
company  to  deliver  the  bonds  to  the  debtor,  or  having  consented 
to  such  delivery,  the  surety  was  relieved  from  his  liability  upon 
the  note  to  the  extent  of  his  loss  by  reason  of  the  delivery  of  the 
bonds  to  the  debtor.^ 

516.  If  the  creditor  loses  collateral  security  given  him 
by  the  principal  debtor,  the  surety  is  discharged  to  the  extent 
of  the  value  of  the  security  lost.^  If,  however,  such  collateral 
security  is  placed,  not  in  the  hands  of  the  creditor,  but  in  the 
hands  of  a  trustee,  who  is  the  common  agent  of  both  the  debtor 
and  the  creditor,  the  latter  is  not  responsible  for  a  loss  or  mis- 
management of  the  security,  unless  he  connives  at  it.  A  trustee, 
such  as  a  trustee  in  a  mortgage  of  a  stock  of  horses  or  other  per- 
sonal property  made  for  the  security  of  the  creditor,  is  not  an 
agent  of  the  creditor,  to  such  an  extent  as  to  render  the  latter 
responsible  for  his  want  of  diligence  in  executing  the  trust,  nor 
will  his  subsequent  assent  to  what  the  trustee  has  wrongfully 
done,  or  neglected  to  do,  relate  back  and  make  the  creditor  re- 
sponsible for  a  loss  that  has  already  occurred.^ 

517.  A  surety  may  even  recover  from  the  creditor  the 
amount  of  the  released  security,  in  case  the  surety,  in  igno- 
rance of  the  creditor's  surrender  or  discharge  of  the  collateral 

1  Fitchburg  Savings  Bank  v.  Tor-     Phares  v.  Barbour,  49  III.  370;  Sher- 

rey,  134  Mass. ;  S.  C.  Mass.  Law     raden  v.  Parker,  24  Iowa,  28. 

Rep.  May  3,  1883.  «  Murrell  v.  Scott,  su^jra. 

■'  Murrell   v.   Scott,   51    Tex.   520  ; 
404 


SUBROGATION   TO   HIS   CREDITOR'S   SECURITIES.       [§§  518-520. 

securit}^  has  paid  the  debt  or  suffered  judgment  for  it  to  be  en- 
tered against  him.^ 

518.  When  the  fact  that  one  debtor  is  a  surety  for  an- 
other does  not  appear  upon  a  written  instrument,  tliis  collat- 
eral fact  of  the  relation  between  debtors  and  notice  of  it  to  the 
creditor  may  be  proved  by  extrinsic  evidence.  The  right  of  the 
surety  does  not  depend  upon  the  form  of  the  contract  but  upon 
equities  arising, out  of  his  relation  to  the  other  parties  to  it  ;  and 
the  creditor  is  affected  with  knowledge  of  this  relation,  acquired 
at  an}'^  time  before  he  does  any  act  which  alters  the  position  of 
the  suret}'.^ 

519.  A  creditor  taking  collateral  security  from  a  debtor, 
without  giving  time,  does  not  discharge  a  surety  of  the  debt.^ 
Mere  delay  by  the  creditor  to  sue  the  principal  debtor  does  not 
discharge  the  surety,  for  the  obvious  reason  that  the  surety  may 
at  any  time  discharge  his  obligation  to  the  creditor,  and  thus 
make  the  principal  his  debtor.  For  the  same  reason  the  law 
implies  no  contract  on  the  part  of  a  creditor  holding  collateral 
security  to  proceed  to  enforce  such  security  before  he  can  sue  a 
surety  of  the  debt  after  its  maturity.  Neither  is  it  any  defence 
for  the  surety  that  the  collateral  has  depreciated  between  the 
time  of  the  maturity  of  the  debt  and  the  commencement  of  suit 
against  the  surety.  * 

520.  A  surety  is  released  by  any  false  statement  made  by 
the  creditor  as  to  the  existing  condition  of  the  collateral 
security,  which  puts  the  surety  off  his  guard,  and  causes  him  to 
lose  the  opportunity  to  protect  himself,  although  the  statement 
be  innocently  made.'^  Thus,  if  a  creditor  informs  a  surety  that 
the  principal  debtor  has  paid  the  debt,  and  the  surety  thereupon 
relinquishes  security  which  he  has  received  from  the  principal, 

^  Chester  v.  Bank  of  Kingston,  16  ^  Sigourney   v.   Wetlierell,    6  Met. 

N.  Y.  336.  (Mass.)   553;    Norton  v.   Eastman,  4 

2  Guild  V.  Butler,  127  Mass.  386  ;  Me,  521;  Prather  v.  Young,  67  Ind. 

Harris  v.  Brooks,    21    Pick.    (Mass.)  480. 

195;    Carpenter     v.    King,    9     Met.  *  Brick  v.  Freehold  Nat.  Banking 

(Mass.)   511  ;  Wilson  v.  Foot,  11   lb.  Co.  37  N.  J.  L.  307. 

285  ;    llorne    v.    Bod  well,    5    Gray  ^  Baker  v.  Briggs,  8  Pick.  (Mass.) 

(Mass.),  45  7.  122. 

405 


§§  521,  522.]  THE   RIGHTS    OF   A    SURETY. 

this  is  a  good  defence  to  an  action  by  the  creditor  against  the 
surety,  though  the  creditor  did  not  intend  to  mislead  him.^  But 
where  a  loan  was  made  upon  a  note  having  a  memorandum  that 
railroad  bo7ids  to  a  certain  amount  were  collateral  to  it,  but,  in 
fact,  7iotes  of  railroad  company  to  the  same  amount  were  de- 
posited as  collateral,  sureties  upon  the  note  were  not  discharged 
in  consequence  of  a  statement  to  one  of  them  by  the  payee,  that 
the  bonds  were  deposited  with  the  note,  when  the  inquiry  made 
of  him  did  not  direct  his  attention  to  the  question  whether  the 
securities  deposited  were  of  the  kind  named  in  the  memorandum 
or  not;  but  the  inquiry  was  such  that  the  creditor  would  natu- 
rally suppose  it  was  directed  to  the  point  of  ascertaining  whether 
he  held  the  securities  which  he  had  taken  when  the  loan  was 
made,  or  had  surrendered  them.^ 

621.  As  between  a  surety  and  a  creditor  to  whom  the 
principal  debtor  has  given  collateral  security  covering  also 
other  obligations,  the  surety  is  not  preckided  from  showing  that 
he  was  induced  to  become  a  surety  for  the  debtor  upon  the  faith 
of  a  parol  agreement  between  him  and  the  creditor  to  the  effect 
that  the  collateral  security  should  be  applied  primarily  to  the 
payment  of  the  obligation  signed  by  the  surety,  even  though 
such  parol  agreement  might  be  inconsistent  with  the  agreement 
in  regard  to  the  collateral  made  between  the  principal  debtor  and 
the  creditor.  Such  parol  agreement  being  established,  the  creditor 
is  bound  to  apply  the  proceeds  of  a  sale  of  the  collateral  in  ac- 
cordance therewith.  Such  evidence  Is  not  liable  to  objection  on 
the  ground  that  it  contradicts  such  written  agreement,  because 
this  objection  could  only  apply  to  the  parties  to  the  agreement.^ 

522.  A  surety's  right  of  subrogation  to  the  creditor's 
securities  does  not  arise  until  the  surety  has  paid  the 
debt.*  But  immediately  upon  such  payment  this  equity  arises 
in  favor  of  the  surety,  and  he  is  entitled  to  have  the  securities 

1  Carpenter  v.  King,  9  Met.  (Mass.)  might  not  object  to  such  application 
511.  of  it,   was  a  question  which  was  not 

2  Fitchbnrg  Savings  Bank  v.  Rice,  considered  in  tliis  case,  because  they 
124  Mass.  72.  were  not  parties  to  the  controversy. 

8  Fant    V.     Sprigg,    50    Md.    551.         *  Hampton    v.  Pbipps,  2    Supreme 
Whether  sureties   upon  other  obliga-     Ct.  Rep.  622,  G 2 G,  jier  Matthews,  J. 
tioas   secured  by  the  same   collateral 

406 


creditor's  right  to  surety's  securities.  [§  523. 

held  by  the  creditor  turned  over  to  him.^  Payment  itself  oper- 
ates as  an  equitable  assignment  of  such  securities  to  the  surety. 
The  wliole  debt  must,  however,  be  paid  before  the  right  of  sub- 
rogation will  arise  ;  a  partial  satisfaction  of  the  debt  gives  the 
surety  no  right  to  claim  the  benefit  of  any  part  of  the  securities. 
A  surety  may  apply  securities  which  the  debtor  has  placed  in 
his  hands  fur  his  indemnity  as  soon  as  the  pledgor's  debt  falls 
due,2 

II.   The  Creditor  s  Equitable  Right  to  the  Surety^s  Securities. 

523.  On  the  other  hand,  any  security  for  the  payment 
of  the  debt  placed  in  the  hands  of  a  surety  is  a  trust  in 
favor  of  the  creditor,  which  he  may  avail  himself  of  at  any 
time  after  the  debt  matures  ;  and  it  is  immaterial  whether  the 
creditor  was  apprised  of  the  giving  of  such  security  at  the  time 
or  not,^  The  earliest  case  in  which  this  equitable  right  is  de- 
clared and  enforced  is  that  of  Maure  v.  Harrison,  decided  in 
1692.*     The  whole  report  is  as  follows  :   "  A  bond  creditor  shall, 

1  Klopp  V.  Leiianon  Bink,  46  Pa.  New  York  :  Moses  v.  IMiirga- 
St.  88;  LoiiLMiridirc  v.  Bowland,  52  troyd,  1  Johns.  Ch.  119;  Heath  v. 
Miss.  54G  ;  jMcConiiick  v.  Irwin,  35  Hand,  1  Paige,  329;  Vail  u.  Foster,  4 
Pa.    St.   Ill;    Magee    i-.   Leggett,  48  N.   Y.    312. 

Miss.  139;    Jones  «;.  Tincher,  15  Ind.  Pennsylvania  :  Cornwell's  Appeal, 

308.  7  AV.  &  S.  30.);  Kramer's  Appeal,  37 

2  Vest  V.  Green,  3  :\ro.  219.  Pa.  St.  71;  Martin,  in  re,  1   Pearson, 
8  Alabama  :  MeMidlen  f.  Xeal,  60  37;  Jack  v.  Morrison,  48  Pa.  St.  113, 

Ala.    552;    Toulmin    i'.    Hamilton,   7  Rice's  Appeal,  79  Pa.  St.  168. 

Ala.  362;  Ohio  Life  Ins.  Co.  v.  Led-  Tennessee  :    Kinsey   v.    McDear- 

yard,  8  Ala.  866;   CuUum  v.  Branch  mon,  5  Coldw.  392 ;  Saviors  v.  Saviors, 

Bank,  23  Ala.  797.  3  Ileisk.  525;  Breedlove  v.  Stump,  3 

Kansas  :   Seibert  v.  True,  8  Kans.  Yerg.  257. 

52;   Seibtrtr.  Thompson,  lb.  65.  4  i  Eq.  Cas.  Abr.  93;  case  5. 

Kentucky:  Bronston  r.  Robinson,  Mr.  Joseph  AVillard,  in  a  learned 
4  B.  Mon.  142;  Moore  r.  Moberly,  7  article  (14  Am.  Law  Rev.  839,842), 
lb.  299;  Helm  r.  Young,  9  lb.  394  ;  to  which  I  am  much  indebted,  corn- 
Havens  V.  Foudry,  4  Mete.  247.  ments    upon    this    case    as    follows  : 

Maryland  :   Baltimore  &  Ohio  R.  "  This,  it  will  be  observed,  states  the 

R.  Co.  V.  Trimble,  51  ]\ld.  99  ;  Kunkel  right  as  an  absolute  one,  and  suggests 

V.   Fitzhuuh,   22    Md.   577;    Owens  u.  no  condition  of  insolvency  on  the  part 

Miller,  29  .Md.  144,  161.  of  either  debtor  or  surety   as  a  pre- 

Massachusetts:    Eastman  v.  Fos-  requisite  to  the  exercise  of  the  equity; 

ter,    8  Met.   19;     Rice    v.  Dewey,   13  nor  any  necessity  of  judgment  to  be 

Gray,  47.  flpst  obtained  by  the  creditor,  or  that 

Missouri  :    Thornton  v.  E.\change  the  liability  of  the   surety  should    be 

Bank,  71  Mo.  221.  otherwise  fi.xed;    nor  any  limit  as  to 

407 


§  524.]  THE  RIGHTS   OF   A   SURETY. 

in  this  coui't,  have  the  benefit  of  all  counter  bonds  or  collateral 
security  given  by  the  principal  to  the  surety  ;  as  if  A.  owes  B. 
money,  and  he  and  C.  are  bound  for  it,  A.  gives  C.  a  mortgage  or 
bond  to  indemnify  him,  B.  shall  have  the  benefit  of  it  to  recover 
his  debt." 

These  authorities  generally  make  the  creditor's  right  to  the 
security  an  absolute  one,  without  reference  to  the  insolvency  of 
either  the  debtor  or  the  surety,  though  the  later  cases  in  Eng- 
land have  disi'egarded  or  repudiated  the  authority  of  Maure  v. 
Harrison,  and  have  made  the  creditor's  right  to  relief  depend 
upon  the  bankruptcy  of  both  the  debtor  and  the  surety.^ 

624.  That  a  creditor  did  not  rely  upon  securities  given 
by  the  debtor  to  a  surety,  and  did  not  know  of  their  existence 
until  long  after  they  were  given,  does  not  prevent  his  claiming 
the  benefit  of  them  whenever  he  may  learn  of  their  existence. 
This  point  was  established  in  an  early  and  leading  case  in  this 
country,  Avhere  a  bill  was  brought  by  the  holder  of  indorsed 
paper  to  have  securities  given  by  the  debtor  to  the  indorser  ap- 
plied for  the  creditor's  benefit.  The  indorser  set  up  in  defence 
that  he  had  assigned  the  securities,  and  also  that  he  was  a  gen- 
eral creditor  of  the  debtor,  who  had  become  insolvent.  Chan- 
cellor Kent  held  that  the  creditor  was  entitled  to  the  benefit  of 
the  indorser's  securities,  saying :  '^  "  These  collateral  securities  ai'e, 
in  fact,  trusts  created  for  the  better  protection  of  the  debt,  and 
it  is  the  duty  of  this  court  to  see  that  they  fulfil  the  design. 
And  whether  the  plaintiffs  were  apprised  at  the  time  of  the 
creation  of  this  security  is  not  material.  The  trust  was  created 
for  their  benefit,  or  for  the  better  security  of  their  debt,  and 
when  it  came  to  their  knowledge  they  were  entitled  to  affirm 
the  trust  and  enforce  its  performance." 

It  is  not  necessary  that  the  creditor  should  know  that  the 
debtor  has  secured  the  surety  in  order  to  enable  him  to  claim 
the  benefit  of  the  security  as  a  trust  in  his  behalf,  because  the 
trust  being  for  his  benefit  it  is  presumed  that  it  has  his  assent.^ 

the  time  when  the  creditor  could  en-  v.  Brush,  2  lb.  311;  Haggerty  v.  Pitt- 
force  his  right."  man,  1  lb.  298;  Moses  i'.  Murgatroyd, 

1  Ex  parte  Waring,  19  Ves.  345.  1  Johns.  (N.  Y.)  CIi.  119. 

2  Curtis  V.  Tyler,  9  Paige  (N.  Y.),  »  McMuUen  v.  Neal,  60  Ala.  552  ; 
432 ;  Pratt  v.  Adams,  7  lb.  615  ;  Keyes  Kramer's  Appeal,  37  Pa.  St.  71. 

408 


creditor's  rights  to  surety's  securities.        [§  525. 

"  The  autliorities  place  tlie  principle  upon  the  ground  that  as 
the  security  is  a  trust  created  for  the  better  securing  of  the  debt, 
it  attaches  to  it,  and  hence  it  is  that  it  may  be  made  available 
by  the  creditor,  although  unknown  to  him  at  the  time  of  the 
purchase  of  the  security,  for  which  it  may  have  been  given  as  an 
indemnit3\  The  effect  of  such  a  transaction  is  the  placing  of 
means  in  the  hands  of  the  surety  by  the  principal  debtor  to 
meet  liability  on  account  of  his  contract  of  suretj^ship.  It  is, 
consequently,  a  trust  for  that  specific  purpose,  and  equity  will 
control  the  legal  title  to  it  in  hands  of  the  surety,  so  that  it  may 
be  applied  to  the  object  intended,  viz.,  the  payment  of  the  debt 
to  the  holder."  i 

525.  In  several  states,  however,  the  creditor's  equity  is 
merely  a  right  to  be  subrogated  to  the  securities  held  by  the 
surety,  or  a  right  to  be  substituted  in  the  surety's  place  for  the 
enforcement  of  any  securities  he  may  have  taken  from  the  prin- 
cipal debtor.  The  creditor's  right  in  respect  to  securities  in  the 
hands  of  the  surety  is  regarded  as  resting  upon  the  same  ground 
as  the  surety's  right  in  respect  to  securities  held  by  the  creditor.^ 
"  This  arises  not  from  aiiy  notion  of  mutual  contract  between 
the  parties,  that  in  providing  for  the  surety,  the  creditor  shall  be 
equally  provided  for,  but  from  a  principle  of  natural  equity  inde- 
pendent of  contract ;  namel}^,  that  to  prevent  the  surety  from 
being  first  harassed  for  the  debt  or  liability,  and  then  turning 
him  round  to  seek  redress  from  the  collateral  security  given  by 
the  principal,  a  court  of  equity  will  authorize,  and  even  encourage, 
the  creditor  to  claim  through  the  medium  of  the  surety,  all  the 
rights  he  has  thus  acquired  to  be  exercised  for  his  benefit,  and  in 
discharge  of  his  obligations.  The  claim  of  the  creditor,  there- 
fore, is  as  much  founded  on  the  well-known  doctrine  of  substitu- 
tion, as  the  claim  of  the  surety  to  stand  in  the  place  of  the 
creditor  who  has  received  collateral  security  from  the  debtor ;  and, 
in  my  opinion,  it  has  no  other  foundation.  For  when  the  princi- 
pal debtor  conveys  property  to  his  surety,  not  specifically  bound  to 

1  Kramer's  Appeal,  37  Pa.  St.  71,  Kramer   v.  Farmers'  Bank,  lb.   253; 

per  Thompson,  J.  Ohio  Loan  &  Trust  Co.  v.  Retder,  18 

^  Virginia  :   Hopewell   v.  Cumber-  lb.    35.      Mississippi  :     O.-born     v. 

land  Bank,   10   Leij^h,  20G;    Bank  v.  Noble,   46    Miss.  449;    Carpenter    v. 

Boisscau,     12     Leigh,    ^87.       Ohio:  Bowen,  42  Miss.  28 ;  Bibb  y.  Martin, 

McConnell    v.   Scott,   15    Ohio,   401;  14  Sm,  &  M.  87. 

409 


§  52G.]  THE  RIGHTS   OF   A   SURETY. 

the  creditor,  be  has  no  intention  of  giving  any  lien  to  the  creditor, 
or  to  pledge  the  property  to  him  for  the  debt ;  and  as  he  has  a 
right  to  dispose  of  his  property  as  be  pleases,  provided  he  com 
mits  no  fraud,  the  court  will  not  construe  the  instrument  giving 
the  lien  beyond  the  intent;  although  it  will,  to  effect  the  exon- 
eration of  innocent  sureties,  permit  their  substitution  to  the 
creditor's  rights,  or  his  substitution  to  theirs."  ^ 

526.  A  distinction  is  to  be  observed  between  cases  where 
the  security  has  been  given  to  the  surety  for  the  payment 
of  the  debt  and  cases  where  it  has  been  given  solely  for  his  in- 
*demnit3^2  In  the  first  class  of  cases  the  primary  purpose  of  the 
debtor  may  fairly  be  taken  to  be  to  secure  the  payment  of  the 
debt ;  while  in  the  latter  class  of  cases  his  purpose  seems  to  be 
primarily  to  secure  the  surety.  In  the  former  class  of  cases  the 
creditor  may  fairly  be  regarded  as  a  direct  beneficiary  in  the 
property  placed  in  the  control  of  the  surety  ;  but  in  the  latter 
class  of  cnses  the  creditor  is  secured  only  indirectly  through  the 
surety.  There  is,  however,  much  difficulty  in  determining  whether 
a  case  falls  within  one  class  or  the  other,  from  the  fact  that  di- 
rectly opposite  views  are  taken  in  different  jurisdictions  of  instru- 
ments of  the  same  tenor.  "  Thus,^  where  a  mortgage  is  given 
in  terms  conditioned  to  save  the  surety  harmless,  and  to  pay  the 
notes,  the  former  clause  has  been  held  b}'  some  courts  to  give  the 
controlling  character  to  the  instrument  as  an  indemnity;*  while 
with  others  the  latter  clause  has  been  viewed  as  decisive  that  it 
created  a  direct  trust  to  pay  the  debt."  ^ 

^  Hopewell  v.  Bank  of  Cumberland,  Qninnipiack  Bank,  29  lb.  25.  Illinois: 

10     L.i^h.     (Va.)     206,     221.       Per  Constant    v.  Matteson,   22    Til.     546. 

Pinker,  J.  Kentucky:    Havens     i'.    Foudry,    4 

2  In  New  Bedford  Inst.  Sav.  v.  Mete.  (Ky.)  247.  Missouri:  Haven 
Fairliaven  Bank,  9  Allen  (Mass.),  v.  Foley,  18  Mo.  136. 
175,  the  security  was  merely  for  the  ^  As  in  Massachusetts:  Eastman 
indemnity  of  the  surety;  and  the  dis-  r.  Foster,  8  Mete.  19.  Mississippi: 
tinction  between  an  indemnity  and  a  Ross  v.  AVilson,  7  S.  &  I\I.  753.  Ten- 
direct  (rust  for  the  payment  of  the  nessee:  Saviors  v.  Saylors,  3  Heisk. 
debt  WHS  jiressed  upon  the  court,  but  525.  Vermont:  Paris  v.  Hulett,  26 
was  rejected  as  immaterial.  Vt.  308.    Maryland:  Kunkel  r.  Fitz- 

8  U  Am.  Law  Rev.  855.  hugh,   22    Md.  5G7;  Boyd  v.  Parker, 

*  As   in    Connecticut:     Thrall   v.  43  lb.  182. 
Spencer,    16     Conn.    139;    Jones    v. 

410 


creditor's  rights  to  surety's  securities.     [§§  527,  528. 

527.  As  between  the  doctrine  of  the  creditor's  equitable 
lien  and  the  doctrine  of  his  right  of  subrogation,  the  weight 
of  authority  seems  to  be  clearly  in  favor  of  the  former.  The 
former  properly  applies  to  cases  where  the  securities  have  been 
placed  in  the  surety's  hands  for  the  payment  of  the  debt;  and 
the  latter  to  cases  where  the  securities  have  been  placed  in  his 
hands  purely  for  his  indemnity.  In  fact,  however,  there  is  no 
such  sharp  distinction  in  the  application  of  these  doctrines  to 
these  different  classes  of  cases;  for,  as  already  noticed,  similar 
instruments  have  been  regarded  by  dilferent  courts  as  falling 
under  each  of  these  classes.  We  have  noticed,  too,  the  tendency 
of  the  courts  to  regard  the  security  in  the  surety's  hands  as  a 
trust  for  the  payment  of  the  debt  rather  than  as  a  mere  indemnity 
to  the  surety.  To  regard  it  as  a  trust  seems  better  to  satisfy 
the  natural  equities  of  the  transaction.  "  We  think,"  says  Mr. 
Willard,  "  that  subrogation  fails  to  exhaust  and  satisfy  the  equi- 
ties of  the  various  modes  in  which  securities  are  delivered  for 
the  surety's  indemnity,  in  that,  first,  it  overlooks  the  real  sense 
of  the  transfer,  which  is  to  reimburse  the  surety  only  if  he  has 
paid,  and  if  he  has  not  paid,  then,  to  enable  him  to  do  so ;  in  a 
word,  to  pay  the  debt,  but  through  the  surety.^  Secondly,  by 
adhering  so  literally  to  the  words  of  the  transfer,  it  confers  upon 
the  surety  an  absolute  control  over  the  securit}^  which  may,  and 
often  does  utterly  defeat  the  payment  of  the  debt.^  Thirdly,  it 
is,  in  practice,  a  I'ule  of  very  difficult  application,  because  of  the 
widely  differing  forms  in  which  this  indemnity  is  given,  in  some 
cases  directly  to  the  surety,  in  others  in  trust  for  him,  where  he 
can  assert  a  control  only  by  himself  becoming  a  suitor  in  law  or 
equity ;  in  other  cases,  again,  no  instrument  defining  the  terms 
of  the  transfer,  but  only  a  simple  delivery  of  the  security,  being 
made  to  the  surety."  ^ 

528.  The  creditor  is  entitled  at  any  time  after  the  delivery 
of  the  security  to  control  or  enjoin  any  misappropriation  of 
the  security,  where  the  creditor's  right  is  regarded  as  a  trust, 
though  until  the  maturity  of  the  debt,  his  trust  lien  does  not 
fully  attach  to  the  security.  Thus  if  the  surety  has  been  indem- 
nified by  receiving  collateral  notes  from  the  debtor,  he  will  be 

1  Lewis  V.  DcForest,  20  Conn.  427,         ^  Rnnkin  v.  Wilscy,  17  Iowa,  4G3. 
442,  443.  8  14  Am.  L.  Rev.  8'A. 

411 


§  529.]  THE   RIGHTS   OF  A   SURETY. 

regarded  as  holding  such  notes  as  trustee  for  the  benefit  of  the 
creditor  who  may  obtain  an  injunction  restraining  him  from  nego- 
tiating the  notes. 1 

Inasmuch  as  the  creditor's  right  rests  upon  the  trust  in  his 
favor  he  has  an  interest  in  tlie  securities  from  the  time  they  are 
given  which  he  may  interfere  to  protect,  and  he  need  not  wait 
till  the  surety's  liability  has  become  fixed. 

A  surety  who  has  received  in  pledge  a  negotiable  note  can,  of 
course,  before  its  maturity  and  while  it  is  not  subject  to  equities, 
transfer  it ;  and  any  one  taking  it  for  value  and  in  good  faith 
will  not  be  affected  by  any  trust  in  favor  of  the  creditor,  nor  will 
he  be  responsible  for  the  manner  in  which  the  surety  applies  the 
proceeds.^ 

529.  But  where  the  creditor's  right  is  one  of  substitution 
merely  he  cannot  assert  it  until  the  surety's  liability  has  be- 
come fixed,  whether  by  maturity  of  the  debt,  or  by  demand  or 
by  judgment.  Until  such  time  the  surety  has  full  control  of  the 
securities,  and  may  dispose  of  them  as  he  pleases.  Thus  where 
rents  were  pledged  to  a  surety,  and  before  his  liability  was  fixed, 
he  purchased  the  fee  of  the  premises,  it  was  held  that  they  were 
placed  beyond  the  creditor's  reach  by  the  merger.^  The  doctrine 
of  the  creditor's  equitable  lien  has  been  criticised  because  it  im- 
pliedly overrides  the  surety's  proper  control  of  his  indemnity, 
while  he  remains  solvent ;  and  on  the  other  hand  the  doctrine  of 
subrogation  is  criticised  because  it  denies  to  the  creditor  the  just" 
protection  to  which  he  is  entitled.^  Until  the  surety's  insolvency 
he  would  seem  to  be  primarily  entitled  to  control  the  security, 
because  until  that  occurs  the  presumption  is  that  he  will  pay  the 
debt ;  but  in  the  mean  time  the  creditor  should  be  entitled  to 
enjoin  the  surety  from  wilfully  misappropriating  the  security. 

Upon  the  insolvency  of  both  the  principal  and  the  surety,  the 
creditor  is  entitled  to  the  benefit  of  security  held  by  the  surety 
merely  for  his  indemnity  ;^  and  he  is  entitled  to  it  upon  the  in- 
solvency of  the  surety  alone.  It  is  even  said  that  "  While  in  no 
view  does  the  insolvency  of  the  principal  debtor  create  the  equity, 
although  it  may  be  a  material  point  in  defining  when  the  credi- 

1  Clark  V.   Ely,  2   Sandf.    (N.  Y.)         3  Rankin  v.  Wilsey,  17  Iowa,  463. 
Ch.  1G6.  4  14  Am.  Law  Rev.  852. 

2  Commercial  Bank  v.  Rochester  ^  Foye,  in  re,  16  N.  Bank  R.  572; 
City  Bank,  46  Barb.  (N.  Y.)  371.  Fickett,  in  re,  72  Me.  266. 

412 


creditor's  rights  to  surety's  securities.    [§§  530, 531. 

tor's  claim  matures,  excusing  demand  or  the  like  ;  on  the  other 
hand,  the  insolvency  of  the  surety  seems  an  indispensable  element 
to  the  enforcement  of  that  equity,  and  to  give  to  it  vitality."  ^ 

530.  The  discharge  of  the  surety  does  not  bar  the  credi- 
tor's right  to  claim  the  securities,  which  the  debtor  has  placed 
in  the  surety's  hands  for  the  payment  of  the  debtor  for  his  indem- 
nity, where  the  creditor  does  not  claim  by  subrogation,  or  through 
the  surety,  but  by  virtue  of  a  trust  which  a  court  of  equity  will 
protect  and  enforce  for  the  creditor's  benefit.  The  trust  survives 
the  surety's  discharge.^ 

But  where  the  creditor's  right  is  one  of  subrogation,  it  is  clear 
that  the  discharge  of  the  surety  before  his  liability  becomes  fixed, 
will  bear  the  creditor's  right  to  receive  and  enforce  the  surety's 
securities.^ 

531.  A  surety  holding  collateral  security  may  transfer  it 
to  the  principal  creditor,  who  is  entitled  upon  default  to  pro- 
ceed to  make  the  money  out  of  such  security  before  suing  the 
principal  note.  The  rule  is  not  changed  by  the  fact  that  such 
security  is  another  note  and  mortgage.* 

But  a  surety  holding  property  in  pledge  to  indemnify  him  for 
his  liability  upon  a  note,  has  no  right  to  transfer  the  property  to 
the  holder  of  the  note  in  satisfaction  of  it ;  and  if  he  does,  the 
transfer  does  not  change  the  status  of  the  property  as  a  pledge, 
or  deprive  the  pledgor  of  his  right  to  redeem  it.^ 

If  a  surety  exchanges  the  securities  he  has  received  for  others, 
or  receives  others  in  payment  for  the  original  securities,  he  will 
hold  the  new  securities  for  the  benefit  of  the  creditor  upon  the 
same  trust  that  he  held  the  original  securities.^ 

1  14  Am.  Law  Rev.  852 ;  Lewis  v.  Bibb  v.  Martin,  14  Sm.  &  M.  (Miss.) 
DeForest,  20  Conn.  427;  Jones  v.  87;  Hopewell  v.  Cumberland  Bank, 
Quinnipiack  Bank,  29  Conn.  25.  10  Leigh  (Va.),  206. 

2  Roberts  v.  Colvin,  3  Gratt.  (Va.)  *  Wells  v.  Smith,  2  Utah,  39.  And 
358,  359;  Eastman  v.  Foster,  8  Mete,  see  Phillips  v.  Thompson,  2  Johns. 
(Mass.)  19  ;  Cullum  v.  Branch  Bank,  (N.  Y.)  Ch.  418. 

23  Ala.  797  ;  Crosby  v.  Crafts,  5  Ilun  ^  IMorgan  v.  Dod,  3  Col.  551. 

(N.  Y.),  327;  Helm  i;.   Young,   9   B.  «  (jij^fk   y.   ^i^,^  2   Sandf.   (N.  Y.) 

Mon.  (Ky.)  394.  Ch. 
8  Osborn  v.  Noble,  46  Miss.  449; 

413 


§§  532,  533.]  THE    RIGHTS   OF   A    SURETY. 

532.  One  may  hold  a  pledge  both  as  creditor  and  as 
surety.  Thus  it  may  be  given  liim  to  secure  a  debt  due  to  him- 
self, and  also  to  indemnify  him  against  a  debt  for  which  he  is 
surety  ;  and  in  that  case  though  it  has  been  said  that  as  between 
himself  and  the  creditor  the  latter  is  entitled  to  be  first  paid  out 
of  the  proceeds  of  the  property,^  because  the  surety  is  regarded 
as  a  quasi  trustee  for  the  creditor  as  to  such  property ;  yet  the 
better  rule  would  seem  to  be  to  apply  the  security  pro  rata^  or 
if  the  surety  has  himself  obtained  the  security,  that  he  should 
be  entitled  to  appropriate  so  much  of  it  as  might  be  necessary 
for  the  payment  of  his  own  demand  in  fuU.^ 

A  creditor  holding  in  pledge  his  debtor's  goods  to  a  greater 
value  than  the  debt  due  him,  entered  into  an  arrangement  with 
another  creditor  of  the  pledgor  whereby  he  transferred  the  goods 
to  the  other  creditor,  who  thereupon  guaranteed  the  payment  of 
this  debt.  The  debtor,  though  not  a  party  to  this  arrangement, 
afterwards  assented  to  it ;  and  the  goods  subsequently  having 
been  attached  as  the  debtor's  property,  it  was  held  that  although 
the  first  pledgee  lost  his  lien  upon  the  goods  by  surrendering 
them  to  the  other  creditor  and  taking  his  guaranty,  the  latter  by 
the  debtor's  assent  to  the  arrangement,  acquired  as  pledgee  a  valid 
lien  on  the  goods  for  the  payment  of  both  debts  ;  a  lien  for  the 
debt  due  to  him,  and  a  lien  to  indemnify  him  against  the  liability 
incurred  by  his  guaranty.* 

633,  A  dividend  received  in  bankruptcy  or  insolvency  by 
a  creditor  whose  claim  is  in  part  secured  by  a  pledge  given 
by  a  surety  should  be  applied  ratably  to  the  whole  demand  ;  that 
is,  ratably  upon  the  secured  and  the  unsecured  portion  of  the 
whole  demand.  The  surety  is  regarded  as  having  secured  a  lim- 
ited part  of  an  entire  debt,  and  not  the  unpaid  balance  of  a  debt 
with  a  limitation  as  to  the  amount  of  the  liability.  If  security 
be  given  for  a  separate  and  distinct  part  of  a  debt,  then  a  divi- 
dend arising  from  that  part  of  the  debt  must  be  applied  to  the 
discharge  of  that  part.  The  intention  of  the  parties  to  the  trans- 
action is  to  be  considered.     If  a  surety  pledge  bonds  to  secure  an 

1  Ten  Eyck  v.  Holmes,  3  Sandf.  (Ky.),  299  ;  Ross  v.  Wilson,  7  Sm.  & 
(N.  y.)  Ch.  428.  M.  (Miss.)  753. 

2  Moore    V.  Moberly,    7    B.    Mon.         »  Brown  v.  Ray,  18  N.  H.  102. 

*  Tread  well  v.  Davis,  34  Cal.  601. 

414 


THE  MUTUAL   EQUITIES   OF   CO-SURETIES.      [§§  534,  535. 

unpaid  balance  of  one  hundred  thousand  dollars  upon  a  much 
larger  debt,  and  a  dividend  in  bankruptcy  of  fifty  per  cent,  be 
paid  upon  the  whole  debt,  it  is  immaterial  to  the  surety  how  or 
by  whom  the  balance  be  paid,  so  long  as  one  hundred  thousand 
dollars  remain  unpaid  ;  but  if  the  dividend  reduce  the  balance 
below  that  amount  the  surety  is  entitled  to  the  benefit  of  the 
reduction,  because  upon  payment  of  the  debt  he  would  be  sub- 
rogated to  the  creditor's  lien  upon  the  bonds.^ 

III.   The  mutual  Equities  of  Co-Sureties  to  claim  the  Benefit  of 
each  other  s  Securities. 

534.  There  is  also  a  mutual  equity  bet-ween  co-sureties 
that  securities  placed  by  the  principal  debtor  in  the  hands  of  one 
surety  to  indemnify  him  for  his  liability,  inure  to  the  benefit  of 
all  other  sureties  for  the  debt.^  Like  the  other  equities  already 
spoken  of,  this  is  a  natural  equity,  and  does  not  depend  upon  any 
contract ;  ^  though  it  is  said  that  it  may  be  presumed  that  the 
debtor  in  securing  one  surety  intended  that  all  the  sureties  should 
share  in  the  benefit  of  the  security  unless  there  be  something  to 
show  that  such  was  not  his  intention  ;  for  in  securing  one  surety 
he  may  expressly  exclude  his  co-sureties  from  the  benefit  of  the 
security  given.* 

535.  But  a  creditor  is  not  entitled  to  the  benefit  of  secu- 
rities placed  by  one  surety  in  the  hands  of  another  for  his 
indemnit}'.  Thus  where  co-sureties  upon  a  bond  agreed  between 
themselves  that  each  should  be  liable  for  the  payment  of  a  cer- 
tain part  of  the  bond,  and  that  each  should  indemnify  the  other 
from  all  claim  by  reason  of  his  liability  upon  the  bond  in  excess 
of  the  sura  or  proportion  which  each  was  to  be  liable  for,  and 
each  gave  to  the  other  security  for  the  performance  of  his  agree- 
ment ;  it  was  held  upon  the  insolvency  of  the  sureties  as  well  as 
the  principal  debtor,  that  the  securities  given  by  the  sureties  to 
each  other  were  not  in  equity  securities  for  the  payment  of  the 

1  Duinont  V.  Fry  (C.  C.  D.  N.  Y.  Stacy,   8    Allen    (Mass.),    41  ;    Hart- 

1882),  14  Kep.  678.  well  v.  Wliitinan,  .-iG  Ala.  IVl. 

^  Hampton   V.  Phipps,   2   Supreme  ^  Derinj;  r.  Winchelsea,  1  Co.x,  318" 

Ct.  Rep.  622,  per  Matthews,  J.  ;  Al-  Brown  v.  Ray,  18  N.  II.  102. 

drich  V.  Ilapgood,  39   Vt.  617  ;  Fi.sh-  <  Moore  v.  Moore,  4  Hawks.  (N.  C.) 

back  V.  Weaver,  34  Ark.  569;  Sliee-  358. 
han  i;.  Taft,  110  Mass.  331  ;  Lane  v. 

415 


§  536.]  THE  RIGHTS   OF  A   SURETY. 

principal  debt,  -wbicli  would  inure  by  way  of  subrogation  to  the 
benefit  of  the  creditor.^  Mr.  Justice  Matthews,  after  stating  the 
equitable  rule  and  the  grounds  of  it,  as  quoted  in  a  preceding 
section,^  declared  that  the  present  case  could  not  be  brought 
within  tlie  terms  or  the  reason  of  the  rule  ;  "  for  as  the  property, 
in  respect  to  which  the  creditors  assert  a  lien,  was  not  the  prop- 
erty of  the  principal  debtor,  and  has  never  been  expressly  pledged 
to  the  payment  of  the  debt,  so  no  equitable  construction  can  con- 
vert it  by  implication  into  a  security  for  the  creditor.  It  is 
urged  that  the  logic  of  the  rule  would  extend  it  so  as  to  cover  the 
case  of  all  securities  held  by  sureties  for  purposes  of  indemnity  of 
whatsoever  character  and  by  whomsoever  given.  But  this  sug- 
gestion is  founded  on  a  misconception  of  the  scope  of  the  rule 
and  the  rational  grounds  on  which  it  is  established.  Of  course, 
if  an  express  trust  is  created,  no  matter  by  whom  nor  of  what, 
for  the  payment  of  the  debt,  equity  will  enforce  it,  according  to 
its  terms,  for  the  benefit  of  the  creditor,  as  a  cestui  que  trust; 
but  the  question  concerns  the  creation  of  a  trust,  by  operation  of 
law,  in  favor  of  a  creditor,  in  a  case  where  there  was  no  duty 
owing  to  him,  and  no  intention  of  bounty.  A  stranger  might 
well  choose  to  bestow  upon  a  surety  a  benefit  and  a  preference^ 
from  considerations  purely  personal,  in  order  to  make  good  to  him 
exclusively  any  loss  to  which  he  might  be  subjected  in  conse- 
quence of  his  suretyship  for  another.  In  such  case,  neither  co- 
surety nor  creditor  could,  upon  any  ground  of  priority  in  interest, 
claim  to  share  in  the  benefit  of  such  a  benevolence." 

536.  That  one  surety  has  pledged  his  own  property  to 
another  surety  for  the  same  debt,  does  not  release  the  principal 
debtor  from  his  implied  contract  to  repay  either  surety  any  sum 
he  may  have  to  pay  upon  the  debt.  A  private  arrangement  be 
tvveen  co-sureties  for  the  distribution  of  liability  inter  sese,  does 
not,  unless  expressly  so  stipulated,  release  the  liability  of  the  com- 
mon principal  to  either  of  them.  That  one  of  several  signers  of 
a  note  pledges  his  own  property  to  another,  does  not  necessarily 
prove  that  he  is  really  the  principal  debtor;  for  one  surety  may 
find  it  for  his  interest  to  pledge  his  property  to  another  surety.^ 

^  Hampton  v.  Phipps,  2    Supreme        ^  Water  Power  Co.  v.  Brown,   23 
Ct.  Reporter,  622.  Kans.  676. 

2  §  514. 

416 


THE   MUTUAL   EQUITIES   OF   CO-SURETIES.       [§§  537,  538. 

637.  A  surety's  right  of  subrogation  does  not  arise  until 
he  has  paid  the  debt.  This  is  true  of  bis  right  as  against  the 
creditor,  and  as  against  his  co-surety  as  well.  Therefore  if  two 
co-sureties  agree  between  themselves  to  share  the  responsibility 
for  the  debt  in  certain  proportions,  and  accordingly  indemnify 
each  other  by  mortgage  for  such  proportions,  and  both  become 
insolvent  without  paying  any  part  of  the  debt,  the  right  of  sub- 
rogation never  arises  between  them  ;  and  for  this  reason,  as  well 
as  for  the  reason  that  the  security  was  not  the  property  of  the 
principal  debtor,  the  creditor  cannot  enforce  the  security  for  his 
own  benefit.  "  Unless  one  of  them  had  been  compelled  to  pay, 
and  had  in  fact  paid,  an  excess  beyond  his  agreed  share  of  the 
debt,  there  could  have  been  no  breach  of  the  conditions  of  the 
mortgage,  and  consequently  no  right  to  a  foreclosure  and  sale  of 
the  mortgaged  premises.  And  the  amount  which  the  mortgagor 
could  be  required  to  pay,  as  a  condition  of  redeeming  the  mort- 
gaged premises,  in  case  of  foreclosure,  would  be,  not  the  amount 
which  the  mortgagee,  as  between  himself  and  the  common  credi- 
tor, was  bound  to  pay  on  account  of  the  debt,  but  the  amount 
which,  as  between  himself  and  his  co-surety,  the  mortgagor,  he 
had  paid  beyond  the  proportion  which,  by  the  terms  of  the  agree- 
ment between  them,  was  the  limit  of  his  liability.  The  mort- 
gages were  not  created  for  the  security  of  the  principal  debt,  but 
as  security  for  a  debt  possibly  to  arise  from  one  surety  to  the 
other.  As  to  which  of  them  has  there  been  as  yet  any  default  ? 
Plainly  none  as  to  either.  And  yet  the  complainants  assert  the 
right  to  foreclose  them  both ;  a  claim  that  is  self-contradictory, 
for,  by  the  very  nature  of  the  arrangement,  it  is  impossible  that 
there  should  be  a  default  as  to  both.  The  fact  that  one  mort- 
gagor had  failed  to  perform  his  part  of  the  agreement  could  only 
be  on  the  supposition  that  the  other  had  not  fully  performed  it  on 
his  part,  but  had  paid  that  excess  against  which  his  co-surety  had 
agreed  to  indemnify  him.  There  is,  therefore,  no  right  to  the 
subrogation  insisted  on,  because  there  is  nothing  to  which  it  can 
apply."  1 

538.  A  surety  is  subrogated  to  securities  placed  in  the 
hands  of  the  creditor  by  his  co-surety  only  to  the  amount  he 
has  actually  paid  for  such  co-surety.     Ordinarily  and  in  the 

1  Hampton  v.  Phipps,  2  Supreme  Ct.  622,  C2G  ;  per  Matthews,  J. 
27  417 


§  639.]  THE   RIGHTS   OF   A    SURETY. 

absence  of  any  express  agreement  co-sureties  as  between  them- 
selves are  liable  for  equal  shares  of  the  principal  debt.  Thus  in 
case  there  are  two  co-sureties,  one  of  them  upon  paying  the  whole 
•debt  can  enforce  against  the  other  the  payment  of  only  half  of  it ; 
and  in  case  one  such  co-surety  is  insolvent,  the  surety  who  has 
paid  the  debt  can  prove  against  his  estate  for  only  half  the 
amount  of  the  debt  paid  by  him.  He  can  prove  for  no  more, 
although  in  his  settlement  with  the  creditor  he  has  received  an 
assignment  of  the  debt  and  of  the  proof  of  the  debt,  which  the 
creditor  has  already  made  for  the  full  amount  of  the  debt  against 
the  estate  of  his  co-surety.  In  such  case  the  creditor's  proof  for  the 
whole  amount  of  the  debt  against  the  estate  of  the  co-surety  will 
be  expunged,  and  the  surety  who  has  received  an  assignment  of 
the  debt  will  be  allowed  to  prove  for  only  half  of  the  amount  of  it. 
Mr.  Justice  Devens,  delivering  the  opinion  of  the  Supreme  Court 
of  Massachusetts  in  a  case  relating  to  the  rights  of  co-sureties  under 
such  circumstances,  said  :  ^  "If  it  be  conceded  that  the  surety  pay- 
ing the  debt  is  equitably  entitled  to  the  benefit  of  such  security  as 
may  have  been  deposited  with  the  creditor  by  the  other  surety,  or 
may  have  been  obtained  against  him,  the  question  still  remains 
whether  he  is  entitled  to  such  security  only  to  the  extent  of  enforc- 
ing a  claim  for  that  which  he  has  paid  on  behalf  of  the  co-surety, 
or  whether  he  may  enforce  the  full  claim  which  the  creditor  had 
against  the  co-surety,  provided  that  he  does  not  himself  thus  obtain 
more  than  he  has  actually  paid  on  behalf  of  the  co-surety.  The 
latter  is  the  contention  of  the  plaintiff.  Upon  the  inquiry  involved, 
the  authorities  are  certainly  conflicting."  After  reviewing  the 
authorities  the  learned  judge  continued  :  "  In  this  conflict  of  au- 
thority, we  are  brought  to  the  conclusion  that  neither  in  his  own 
name  nor  in  that  of  the  creditor  ought  the  surety  paying  the  debt 
to  enforce  any  claim  against  his  co-surety,  except  for  the  amount 
actually  paid  by  him  for  his  co-surety  ;  and  if,  by  reason  of  the 
insolvency  of  such  surety,  there  is  a  loss,  it  is  one  to  which  the 
relation  in  which  they  stand  to  each  other  compels  him  to  sub- 
mit." 

539.  The  fact  that  one  surety  has  misappropriated  prop- 

1  New  Bedford  Institution  for  Sav-  360.     See,  however,  Apperson  v.  Wil- 

ings  V.  Hathaway,  134  Mass.  69.     See  bourn,  58  Miss.  439  ;  Hess's  Estate,  69 

Bowditch   V.   Green,  3  Mete.  (Mass.)  Pa.  St.  272. 
418 


THE   MUTUAL   EQUITIES   OF   CO-SURETIES.  [§  539. 

erty  delivered  to  him  by  the  debtor  as  collateral  security 
for  his  liability,  is  no  defence  to  an  action  by  the  creditor  against 
a  co-snrety.  The  creditor  having  no  possession  or  control  of  the 
security  in  such  case,  cannot  be  held  responsible  for  a  fraudulent 
conversion  of  it  by  the  surety .^ 

^  Prather  v.  Young,  67  Ind.  480. 

419 


CHAPTER  XIV. 


PAYMENT   AND   REDEMPTION. 


I.  Effect  of  payment  or  tender  of  payment, 

540-547. 
II.  Application  of  payments,  548-551. 
III.  Redemption    in    Equity  and   at  Law, 
552-560, 


IV.  Action  for  conversion  by  the  pledgee, 

561-580. 
V.  Statute  of  Limitations,  581-583. 


I.  Effect  of  Payment  or  Tender  of  Payment. 

540.  Payment  of  the  debt  for  which  the  collateral  security 
was  taken  discharges  the  pledge,  and  the  security  will  not 
apply  to  any  new  indebtedness  unless  there  be  an  agreement  of 
the  parties  that  it  shall  so  apply.^  Whether  the  security  be  a 
chattel  or  a  chose  in  action,  the  payment  of  the  debt  by  the 
pledgor  revests  in  him  the  beneficial  interest,  and  he  becomes 
again  the  absolute  owner.^  And  payment  or  tender  of  payment 
is  the  only  means  whereby  the  pledgor  can  by  his  own  act  rein- 
vest himself  with  the  right  of  possession  of  the  pledge.^ 

Anything  that  effects  a  satisfaction  of  the  debt  is  payment.* 
Payment  may  be  made  as  well  by  the  delivery  and  acceptance 
of  personal  property  as  by  the  delivery  and  acceptance  of  money. 
But  there  must  be  a  substantial  satisfaction  of  the  debt  in  some 
way  in  order  to  discharge  the  lien.  Two  notes  were  delivered 
as  collateral  security  for  advances  to  be  made  under  certain  con- 
tracts made  by  the  pledgee  with  the  indorser.  The  creditor 
afterwards  brought  an  action  for  a  final  accounting  under  the 
contracts,  and  obtained  a  judgment  which  was  satisfied.  In  this 
action  claims  for  advances  made  upon  two  drafts,  each  referring 
specifically  to  one  of  the  collateral  notes,  were  rejected  because 
not  included  in  the  bill  of  particulars.    Subsequently  the  creditor 


^  Biebinger  v.  Continental  Bank,  99 
U.  S.  143. 

2  Lapping  v.  Duffy,  6.5  Ind.  229; 
Compton  V.  Jones,  65  Ind.  117;  Ward 

420 


V.  Ward,  37  Mich.  253;  Merrifield  v. 
Baker,  9  Allen  (Mass.),  29. 

8  Henry  v.  Eddy,  34  111.  508. 

*  Bacon  v.  Lamb,  4  Colo.  578; 
Strong  V.  Wooster,  6  Vt.  536. 


EFFECT   OF   PAYMENT   OR   TENDER   OF   PAYMENT.      [§§  541,  542. 

brought  suit  upon  these  notes,  and  it  was  contended  that  they 
were  merged  in  the  judgment  recovered  in  the  action  for  an  ac- 
counting ;  but  it  was  held  that  they  were  not  so  merged ;  that 
the  obhgation  of  the  parties  thereto  remained  until  the  purpose 
for  which  the  notes  were  delivered  should  be  accomplished,  namely, 
the  securing  the  payment  of  the  advances  made  by  the  creditor 
upon  the  faith  of  these  notes.^ 

The  whole  debt  must  be  paid  in  order  to  discharge  the  lien 
of  the  pledge.  In  Louisiana  the  civil  code  provides  that  when 
several  things  have  been  pawned  the  owner  can  not  retake  one 
of  these  without  satisfying  the  whole  debt,  though  he  offers  to 
pay  a  certain  amount  of  it  in  proportion  to  the  thing  which  he 
wishes  to  get.  The  creditor  who  is  in  possession  of  the  pledge 
can  only  be  compelled  to  return  it,  when  he  has  received  the 
whole  payment  of  the  principal  as  well  as  the  interest  and  costs.^ 

541.  A  renewal  of  a  note  secured  by  a  pledge  does  not 
extinguish  the  debt,  and  is  not  a  payment  of  it  which  will  dis- 
charge the  creditor's  claim  upon  the  collateral  security.^  Upon 
payment  of  a  part  of  the  original  note,  and  the  execution  of  a 
new  note  in  renewal  of  the  remainder  of  the  debt  not  paid,  a 
pledge  taken  as  security  for  the  original  note  will  stand  as 
security  for  such  new  note,  in  the  absence  of  any  agreement  to 
the  contrary.^ 

542.  A  tender  of  the  amount  due  on  a  debt  for  which 
property  is  held  in  pledge,  or  for  which  collateral  security  has 
been  given,  at  the  time  the  debt  is  due,  wholly  discharges  the  lien 
of  the  pledge,  and  revests  the  title  to  the  thing  pledged  in  the 
pledgor,  so  as  to  entitle  him  to  maintain  trover,  or  replevin  there- 
for.5  In  this  respect  a  tender  is  equivalent  to  actual  payment. 
A  tender  of  a  part  of  the  amount  of  the  debt  will  not  have  the 

1  Steele  v.  Lord,  28  Hun  (N.  Y.),  6  Ratcliff  v.  Davies,  Cro.  Jac.  244; 
27.  S.  C.  1  Bulstr.  29;  Coggs  v.  Bernard,  2 

2  R.  Civ.  Code,  1870,  p.  376,  Arts.  Ld.  Raym.  909  ;  S.  C.  Holt,  528;  Ryall 
3163,  3164.  V.  Rowles,  1    Atk.  165,  167;  Haskins 

8  Collins  V.  Dawley,  4    Colo.  138;  v.  Kelly,  1  Robt.  (N.  Y.)  160;  5.  C.  1 

Pinney    v.    Kimpton,    46  Vt.  80,  83;  Abb.  Pr.  N.  S.  63;  Ball  v.  Stanley,  5 

Moses  V,  Trice,  21  Gratt.  (Va.)  506.  Yerg.  (Tenn.)  199;  McCalla  v.  Clark, 

*  Dayton  Nat.  Bank  i'.  ^Merchants'  55  Ga.  53. 
Nat.  Bank,  37  Ohio  St.  208. 

421 


§§  543,  544.]  PAYMENT    AND   REDEMPTION. 

effect  to  revest  the  title  to  any  part  of  the  property  pledged ;  ^ 
the  debt  must  be  paid  as  a  whole,  and  the  tender  to  be  effectual 
must  be  co-extensive  with  the  whole  debt  secured.^ 

In  one  respect  a  tender  is  not  equivalent  to  payment ;  for 
although  the  lien  is  discharged  by  either,  the  debt  is  not  dis- 
charged by  a  tender,  but  the  pledgee  may  still  maintain  his 
action  for  this. 

543.  A  creditor  by  refusing  a  tender  properly  made  of 
the  amount  of  a  debt  secured  by  a  pledge,  converts  it  to  his 
own  use.  He  makes  it  his  own  so  far  as  to  run  the  chance  of 
any  depreciation  that  may  afterwards  occur.  He  cannot  sue  for 
and  recover  the  debt  without  making  a  proper  allowance  for  the 
value  of  the  pledge  as  it  was  at  the  time  of  the  tender  in  reduc- 
ing or  satisfying  the  debt.^  If  in  such  case  there  be  a  surety  of 
the  debt,  he  is  released ;  for  the  surety  is  entitled  to  have  the 
security  delivered  up  to  him  upon  his  paying  the  debt ;  and  when 
the  creditor  has  by  his  own  act  destroyed  the  security  or  rendered 
it  valueless,  or  put  it  out  of  his  power  to  give  the  surety  the 
benefit  of  the  substitution,  the  latter  is  discharged.* 

Upon  the  pledgee's  refusal  of  a  tender  of  the  whole  amount  of 
the  debt  secured,  the  debtor  may  maintain  trover  for  the  prop- 
erty, and  he  is  entitled  to  damages  to  the  full  value  of  the  prop- 
erty, without  any  abatement  for  the  amount  for  which  the 
property  was  pledged.  The  creditor  must  resort  to  an  action  to 
recover  the  debt.  The  refusal  of  the  tender  discharges  the  lien 
upon  the  property  and  places  the  parties,  in  relation  to  the 
property,  in  the  same  position  as  if  the  debt  had  been  paid  and 
no  pledge  had  ever  existed.^ 

544.  Upon  tender  or  payment  of  the  specific  debt  secured 
by  pledge,  the  creditor  has  no  power  over  the  collateral 
security  except  to  hold  it,  and  deliver  it  to  the  debtor  upon 
demand.  The  fact  that  shares  of  stock  have  been  pledged  to 
secure  a  promissory  note  which  provided  that  the  holder  might 

^  Appleton  V.  Donaldson,  3  Pa.  St.  131    Mass.  14;   Hancock  v.  Franklin 

381.  Ins.  Co.  114  Mass.  155. 

2  Bigelow  V.  Young,  30  Ga.  121.  ■*  Griswold  v.  Jackson,  supra. 

8  Griswold  V.  Jackson,  2  Edw.  (N.  5  Ball  v.  Stanley,  5  Yerg.  (Tenn.) 

Y.)    Ch.  461;    affirmed  4   Hill,    522;  199. 
Hathaway  v.  Fall  River  Nat.  Bank, 

422 


EFFECT   OF   PAYMENT   OR   TENDER   OF   PAYMENT.        [§  545. 

sell  the  collateral  on  default  "  he  giving  me  credit  for  any  bal- 
ance of  the  net  proceeds  of  such  sale,  and  paying  all  sums  then 
due  from  me  to  said  holder,"  does  not  give  the  holder  any  right 
to  retain  the  stock  as  security  for  any  other  debt  after  payment 
or  tender  of  payment  of  the  note.^  The  event  upon  which  the 
holder  was  authorized  to  credit  the  pledgor  with  the  proceeds  of 
the  collateral  and  to  pay  therewith  other  debts  due  from  him, 
does  not  occur  when  payment  or  tender  is  made  before  the  credi- 
tor exercises  his  power  of  sale.  Upon  payment  or  tender  the 
pledgor  or  any  one  standing  in  his  place  is  entitled  to  receive  the 
stock  discharged  of  the  lien  created  by  the  pledge.  The  pledgor's 
assignee  in  insolvency  or  his  assignee  for  the  benefit  of  his  cred- 
itors would  be  entitled  to  his  rights  in  such  case,  so  that  in 
an  action  to  redeem  the  pledged  stock,  the  creditor  could  not  set 
off  other  debts  due  him  from  the  pledgor  at  the  time  the  note 
matvired.2  Moreover  it  would  be  no  defence  to  a  bill  by  such 
assignee  that  the  creditor  had  applied  the  pledged  stock  in  pay- 
ment of  other  debts  due  from  the  pledgor.^  Cases  in  which  it  is 
held  that  the  damages  in  trover  may  be  mitigated  by  proof  that 
the  goods  converted  have  been  restored  to  the  owner,  or  their 
proceeds  applied  to  his  use  or  to  payment  of  his  debts  would 
have  no  application  as  against  such  assignee,  because  he  repre- 
sents not  merely  the  pledgor  but  his  creditors. 

645.  A  tender,  to  have  the  effect  of  discharging  the  lien  of 
a  pledge,  must  be  absolute  and  unconditional,  and  must  in  all 
other  ways  conform  to  the  general  rules  relating  to  the  mode  of 
making  a  tender.  The  money  need  not  be  actually  produced,  if 
the  debtor  has  it  ready  and  offers  to  pay  it,  but  the  creditor  dis- 
penses with  the  production  of  it  in  any  manner,  as  for  instance, 
by  expressly  saying  to  the  debtor  that  he  need  not  produce  the 
money,  as  he  would  not  accept  it.^  But  a  bare  refusal  to  receive 
the  sum  offered,  and  a  demand  of  a  larger  sum  are  not  enough  to 
excuse  an  actual  tender  of  the  money.  Thus,  where  a  debtor 
met  his  creditor  for  the  purpose  of  redeeming  stock  held  in  pledge, 

1  Hathaway  v.  Fall  River  Nat.  ^  Hathaway  v.  Fall  River  Nat. 
Bank,  131  Mass.  14.  Bank,  aupra. 

2  Hathaway  v.  Fall  River  Nat.  ■*  Thomas  v.  Evans,  10  East,  101; 
Bank,  supra;  Stetson  v.  Exchange  Kraus  v.  Arnold,  7  Moore,  59;  Ilan- 
Bank,  7  Gray  (Mass.),  425.  cock  v.   Franklin  Ins.  Co.,  114  Mass. 

-    155. 

423 


§§  546,  547.]  PAYMENT   AND   REDEMPTION. 

and  the  amount  due  upon  it  having  been  agreed  upon,  the  debt- 
or's agent  and  broker  was  about  to  fill  up  a  check  for  the  amount, 
when  the  creditor  requested  that  the  business  should  be  post- 
poned to  the  next  day,  and  demanded  the  whole  value  of  the 
stock,  amounting  to  much  more  than  the  sum  liquidated,  under 
the  pretence  that  he  was  responsible  as  surety  for  the  debtor,  on 
another  and  separate  account,  the  tender  was  held  to  be  in- 
effectual.^ 

A  tender  accompanied  with  a  demand  for  a  receipt,  or  a  dis- 
charge of  a  lien  or  a  return  of  securities,  is  not  an  unconditional 
tender.  A  tender  should  not  be  accompanied  with  a  demand  for 
anything  more  than  the  production  and  delivery  of  any  negotiable 
paper  representing  the  debt  which  is  sought  to  be  paid.^  More- 
over the  tender  must  at  all  times  be  kept  good ;  that  is,  the  debtor 
must  constantly  keep  on  hand  the  money  tendered  separate  from 
his  other  money  ready  to  pay  over  to  the  creditor  whenever  he 
might  be  ready  to  take  it,  and  must  bring  the  money  into  court.^ 

546.  A  tender  need  not  include  interest  upon  the  debt  if 
none  was  contracted  for,  and  none  has  accrued  by  way  of  dam- 
ages after  a  demand.  Thus  upon  a  pledge  of  a  watch  by  way  of 
a  sale  of  it  for  eighty-two  dollars,  with  an  agreement  that  the 
seller  should  have  it  again  in  thirty  daj^s,  upon  the  payment 
of  eighty-seven  dollars,  a  tender  of  the  latter  sum  was  held 
sufficient,  the  five  dollars  bonus  being  regarded  as  in  lieu  of  in- 
terest.* 

547.  Upon  the  tender  of  the  amount  of  a  debt  for  which 
an  accommodation  note  is  held  as  security,  the  maker  of  such 
note,  being  in  effect  a  surety,  is  discharged.  The  creditor  by  a 
tender  from  the  principal  debtor  has  in  his  hands  the  means  of 
payment,  and  by  his  refusal  to  accept  it  discharges  the  surety  ; 
and  in  an  action  by  the  creditor  upon  the  collateral  note,  the 
maker  of  that  need  not  plead  the  tender,  or  bring  the  amount 
into  court. ^ 

1  Dunham  v.  Jackson,  6  Wend.  (N.         ®  Cass  v.  Higenbotam,  supra. 

Y.)  22.  ^  Hines   v.    Strong,    46    How.    (N. 

2  Cass  V.  Higenbotam,  27   Hun  (N.  Y.)  Pr.  97;  affirmed,  56  N.  Y.  670. 
Y.),  406  ;  Brooklyn  Bank  v.  DeGrauw,         ^  Appleton  v.  Donaldson,  3  Pa.  St. 
23  Wend.  (N".  Y.)  342.  381. 

424 


APPLICATION   OF   PAYMENTS.  [§§  548-551. 

II.  Applicatio7i  of  Payments. 

548.  Where  a  pledge  covers  several  distinct  debts,  con- 
tracted at  divers  times,  the  moneys  arising  from  the  pledge  should 
be  applied  to  the  discharge  of  the  debts,  in  the  order  in  which  they 
were  contracted,  provided  the  circumstances  are  such  that  neither 
the  debtor  nor  creditor  has  the  right  to  determine  the  application 
of  the  proceeds,  and  the  pledge  was  made  in  security  of  the 
several  debts  in  such  a  way,  that  the  debtor  pledged  for  each 
debt  what  remained  of  the  pledge,  after  payment  of  the  next 
previous  debt.^ 

549.  A  general  payment  may  be  applied  by  the  creditor  as 
he  may  determine.  A  creditor  holding  security  for  various 
notes  of  his  debtor,  some  of  which  bear  the  names  of  sureties, 
may  apply  general  payments,  or  sums  of  money  received  from 
the  security,  to  the  payment  of  such  of  the  notes  as  may  be  nec- 
essary for  his  own  protection  ;  and  the  sureties  xipon  other  notes 
cannot  avail  themselves  of  the  security  in  any  way,  without  pay- 
ing or  tendering  the  whole  amount  of  the  debts  for  which  the 
security  was  given.  ^ 

550.  The  proceeds  of  the  property  pledged  must  be  applied 
in  the  first  instance  to  the  payment  of  the  debt  secured.^  If  a 
pledgee  assign  the  pledge  to  secure  a  debt  of  his  own,  he  cannot 
provide  that  the  assignee  shall  apply  the  proceeds  of  the  pledge 
in  the  first  instance  to  the  payment  of  the  pledgee's  debt,  for  the 
assignment  is  necessarily  subject  to  the  lien  of  the  original  debt 
secured  by  the  pledge,  and  the  pledgee  cannot  change  the  appro- 
priation except  with  the  consent  of  the  debtor.* 

551.  A  creditor  has  no  right  to  apply  collateral  security  for 
any  purpose  other  than  that  for -which  it  was  specially  given.^ 
Thus  an  agent  having  procured  a  discount  of  his  principal's  note 
secured  by  another  larger  note  belonging  to  his  principal  as  col- 

^  Jones  V.  Benedict,  83  N.  Y.  79 ;        ^  -Wilcox  v.  Fairhaven  Bank,  7  Al- 
affirniing   S.   C.  11  Hun,   128;  11  N.     len  (Mass.),  270. 
Y.  Weekly  D\%.  428.     See  Pattison  v.         »  Marziou  v.  Pioche,  8  Cal.  522. 
Hull,  !)   Cow.  (N.  Y.)   747,  and  note,        *  Ware  v.  Otis,  8  Me.  387. 
777.  ^  Phillips   v.   Thompson,    2   Johns. 

CN.  Y.)  Ch.  418. 

425 


§§  552,  553.]  PAYMENT   AND   REDEMPTION. 

lateral,  the  creditor  upon  the  maturing  of  the  collateral  note,  be- 
fore the  principal  note,  applied  the  proceeds  of  it  to  take  up  a 
note  made  by  the  agent's  firm.  Although  the  agent  when  obtain- 
ing the  discount  told  the  creditor  to  collect  the  collateral  note  and 
credit  the  proceeds  to  his  firm,  the  creditor,  knowing  when  he  dis- 
counted the  note  that  the  collateral  note  was  the  property  of  the 
principal,  or  at  any  rate  knowing  enough  to  put  him  upon  inquirj'^, 
had  no  right  to  apply  such  note  otherwise  than  for  the  principal's 
benefit.  The  collection,  therefore,  of  the  collateral  note,  operated 
as  payment  of  the  principal's  note  upon  the  maturity  of  that,  and 
made  the  pledgee  the  debtor  to  the  principal  for  the  difference 
between  the  two  notes.^ 

An  agent  who  has  obtained  a  loan  for  his  principal  upon  a 
pledge  of  goods  belonging  to  the  latter,  cannot  in  the  absence  of 
a  special  agreement,  appropriate  the  proceeds  of  a  sale  of  the 
goods  to  the  payment  of  a  debt  due  to  himself  by  the  principal.^ 

III.  Redemption  in  Eqiiity. 

552.  In  general.  —  When  personal  property  is  conveyed  as  se- 
curity by  way  of  mortgage,  the  legal  title  passes  to  the  creditor, 
and  his  title  becomes  absolute  at  law  upon  breach  of  the  con- 
dition. The  debtor  has  no  legal  right  to  redeem,  and  it  is  only 
in  equity  that  he  can  be  relieved  from  the  forfeiture  and  allowed 
to  redeem.  He  has  no  legal  right  to  redeem  unless  such  a  right 
be  given  by  statute.^  But  in  case  of  a  pledge,  as  has  already 
been  noticed,  the  pledgor  does  not  part  with  the  general  title, 
but  only  with  the  possession  and  a  special  property.  Upon  de- 
fault the  debtor  still  retains  the  general  title.  The  property  is 
not  conveyed  upon  a  condition  that  the  conveyance  shall  be  void 
upon  performance  of  the  condition.  There  is  no  conveyance  of 
the  thing  pledged,  and  no  condition  upon  the  breach  of  which 
the  property  becomes  absolute  in  the  creditor.  Therefore  the 
debtor  has  a  legal  i-ight  to  redeem,  although  he  has  not  paid  the 
debt  secured  at  its  maturity,  or  otherwise  performed  the  con- 
ditions of  his  contract. 

553.  A   right    of  redemption    attaches   to    every  pledge. 

1  Geffcken  v.  Slingerland,  1  Bosw.  ^  Jones  on  Chattel  Moi'tgages,  § 
(N.  Y.)449.  683. 

^  James's  Appeal,  89  Pa.  St.  54. 

426 


REDEMPTION   IN   EQUITY.  [§  553. 

This  right  is  a  part  of  the  contract  whether,  it  be  express  or  im- 
plied ;  and  the  parties  can  make  no  valid  agreement  that  there 
shall  be  no  redemption  after  default.  "  Once  a  mortgage  always 
a  mortgage,"  is  one  of  the  most  important  maxims  in  the  law  of 
mortgages.^  With  a  change  of  terms  it  is  equally  applicable  in 
the  law  of  pledges.  "  The  right  of  redemption  attaches  equally 
to  both,  and  it  is  as  difficult  to  transmute  the  one  as  the  other 
into  a  sale,  by  the  operation  of  the  original  contract.  Though 
anciently  at  Rome,  the  creditor  and  debtor  were  permitted,  by 
the  lex  cornmissoria,  to  make  an  agreement  at  the  date  of  the 
pledge  whereby  it  would,  on  a  prescribed  contingency,  become 
the  absolute  property  of  the  pawnee ;  sucb  a  power  was  not  in- 
dulged, even  at  Rome,  since  the  days  of  Constantine,  who  abol- 
ished the  law  by  which  it  had  been  sanctioned.  Every  agree- 
ment for  preventing  redemption  of  pawns  is  proscribed  by  the 
common  law  as  emphatically  as  are  similar  agreements  in  mort" 
gages  of  real  estate."  ^  Therefore,  if  in  a  written  or  verbal  contract 
of  pledge  it  is  stipulated  that  the  property  shall  be  absolutely  the 
property  of  the  pledgee,  if  the  debt  be  not  paid  at  a  time  stipu- 
lated, the  right  to  redeem  exists,  notwithstanding  the  agreement 
of  the  parties.    The  law  recognizes  no  agreement  to  prevent  a  re- 

1  Jones  on  Mortp;ages,  §§  7,  340  ,  of  Constantine  prohibiting  such  con- 
Clark  V.  Henry,  2  Cow.  (N.  Y.)  324;  tracts,  has  been  imported  into  the 
Hughes  V.  Johnson,  38  Ark.  285  ;  law  of  France  (Poth.  Nantissement, 
Hart  V.  Burton,  7  J.  J.  Marsh.  (Ky.)  18),  and  into  the  modern  law  of  Con- 
322;  Baldwin  v.  Bradley,  69  111.  32,  tinental  Europe.  The  creditor  can- 
36.  not  stipulate  that  if  he  is  not  paid  at 

"By  the  early  Roman  law,  the  the  time  appointed,  the  thing  pledged 
debtor  and  creditor  might  agree  that  shall  become  his  own  property,  for 
if  the  debtor  did  not  pay  the  debt  such  an  agreement  would  be  contra 
within  a  time  specified,  the  thing  6o?ios  7?iores ;  for  the  pledge  is  given  to 
pledged  should  be  forfeited  and  be-  the  creditor  only  as  a  security  for  the 
come  the  absolute  property  of  the  debt,  and  not  to  enable  him  to  profit 
creditor.  But  a  law  of  Constantine  by  the  indigence  of  his  debtor.  Do- 
prohibited  such  contracts,  on  the  mat,  lib.  3,  tit.  1,  §§  3, 11 ;  "  Folkard's 
ground  that  they  were  unjust  and  op-  Law  of  Pawnbrokers,  p.  11,  n.  f. 
pressive  to  debtors;  and  declared  that  ^  jj^^j-t  v.  Burton,  7  J.  J.  Marsh, 
every  contract  should  be  null  and  void  Ky.  322,  323,  per  Robertson,  C.  J. 
which  j)rovided  that  the  thing  pledged  And  see  Wadsworth  i'.  Tliompson,  8 
should  pass  to  the  creditor  without  111.423,427;  Marshal  t;.  Williams,  2 
sale  or  apprisement,  or  that  the  debtor  Hayw.  (N.  C.)  405  ;  Luckctt  v.  Town- 
should  forfeit  his  right  of  redemption  send,  3  Tex.  119;  Hnglie.s  v.  Johnson, 
if  lie  failed  to  pay  a  the  pro[)er  time,  supra. 
Cod.  lib.  8,  tit.    '.ifj,    1,   3.     'J'his  law 

427 


§  554.]  PAYMENT   AND   REDEMPTION. 

demption  of  the  pledge.  Any  contract  which  is  a  pledge  in  the 
beginning  continues  a  pledge  until  the  debt  is  paid  or  the  right  o£ 
redemption  is  foreclosed.  The  parties  may,  by  a  subsequent  agree- 
ment for  a  valid  consideration,  release  the  right  of  redemption ; 
but  they  cannot  in  the  original  contract  agree  that  no  right  of  re- 
demption shall  attach  to  it.  Thus  a  stipulation  made  by  a  mort- 
gagee in  the  assignment  of  a  mortgage  as  collateral  security,  that 
he  shall  forfeit  all  interest  in  it  if  he  fail  to  pay  his  debt  at 
maturity  does  not  cut  off  his  right  to  redeem  it  afterwards.^ 

554.  An  agreement  by  a  pledgor  that  the  property  pledged 
shall  become  the  pledgee's  absolutely  upon  his  failure  to  pay 
the  debt  at  the  time  specified,  will  not  be  enforced ;  but  in  a  suit 
by  the  pledgee  to  recover  the  principal  debt  he  will  be  held  to 
account  for  the  proceeds  of  the  property  pledged,  if  this  has 
been  sold.^  Moreover,  the  pledgor  upon  a  tender  of  the  full 
amount  of  the  debt,  may,  in  replevin,  recover  the  thing  pledged, 
or  may  recover  its  value  in  action  of  trover ;  or  in  exceptional 
cases  may  maintain  bill  in  equity  to  redeem.^ 

A  creditor  holding  notes  of  third  persons  as  collateral  security 
must  account  for  them  or  their  proceeds,  although  his  debtor  has 
agreed  with  him,  that  if  the  debt  be  not  paid  at  a  specified  time, 
the  collateral  notes  shall  become  his  absolutely.  If  the  creditor 
in  such  case  bring  suit  upon  the  principal  debt,  recover  judgment 
and  collect  it  in  full,  and,  pending  the  suit  or  afterwards,  he  sells 
the  collateral  notes,  and  fails  to  account  for  their  proceeds  to  the 
debtor,  the  latter  may  recover  the  same  of  the  creditor.  "  Courts 
of  law  as  well  as  of  equity  very  frequently  refuse  to  carry  out 
the  express  agreements  of  parties  where  the  result  would  be 
gross  injustice  to  one,  without  any  corresponding  loss  to  the 
other,  calling  for  such  injustice.  Especially  should  this  be  the 
case  where  an  agreement  made  between  mortgagor  and  mort- 
gagee, or  borrower  and  lender,  is  sought  to  be  enforced  or  inter- 
posed as  a  defence.  The  law  should  and  does  scrutinize  closely 
all  such  agreements,  and  refuses  to  enforce  them,  especially 
where,  as  in  this  case,  to  do  so  would  be  both  unjust  and  un- 
conscionable." '^ 

1  Hughes  V.  Johnson,  38  Ark.  285.  3  Stoker  v.  Cogswell,  25  How.  (N. 

'^  Dorrill   v.  Eaton,   35    Mich.  302;  Y.)  Pr.  267. 

Kingsbiu-y  v.  Phelps,  AVright  (Ohio),  *  Dorrill  v.  Eaton,  supra.  . 
370.                        428 


REDEMPTION   IN   EQUITY.  [§§  555-557. 

55b.  The  parties  may  at  a  time  subsequent  to  the  pledge 
agree  that  the  creditor  shall  take  the  pledge  in  satisfaction 
of  the  debt,  and  their  contract  to  this  effect  if  clearly  proved  will 
be  enforced.  They  may  also  agree  that  the  creditor  may  sell 
the  pro]3erty  pledged  at  a  stipulated  price,  or  may  himself  take 
the  property  at  that  price  and  credit  the  pledgor  with  the  amount. 
But  to  prevent  a  redemption  there  must  be  clear  and  satisfactory 
proof  not  only  of  the  contract  itself,  but  of  the  creditor's  elec- 
tion to  take  the  property  at  the  price  agreed  upon,  either  by  his 
giving  personal  notice  of  such  election,  or  by  his  crediting  the 
amount  upon  his  books.  A  mere  resolution  in  the  creditor's  own 
mind  to  take  the  opportunity  is  not  sufficient.  The  appropria- 
tion must  be  such  that  the  debtor  could  have  availed  himself 
of  it.i 

Such  an  arrangement,  moreover,  will  not  be  sustained  if  the 
creditor  has  made  any  fraudulent  or  oppressive  use  of  his  position 
and  power  over  the  debtor. 

656.  In  general  a  bill  in  equity  does  not  lie  to  redeem 
property  from  a  pledge,  because  the  remedy  at  law  upon  a 
tender  of  the  money  is  ample ;  ^  the  remedy  at  law  being  either 
a  possessory  action  to  recover  the  thing  pledged,  or  an  action  of 
trover  to  recover  its  value. 

A  special  ground  for  proceeding  in  equity  must  be  shown,  as 
that  a  discovery  is  necessary  or  that  an  account  is  wanted,  or 
that  there  has  been  an  assignment  of  the  pledge.^ 

557.  A  bill  in  equity  may  be  maintained  to  redeem  a 
pledge,  if  an  account  is  wanted,  or  if  there  has  been  an  assign- 
ment of  the  pledge,  notwithstanding  the  pledgor  has  a  remedy  at 
law,  in  an  action  of  trover.*  But  if  the  ground  be  the  necessity 
of  an  account,  the  account  must  be  a  real  one ;   that  is,  there 

1  Beatty  v.  Sylvester,  3  Nev,  228.  Story  Eq.  Juris.  §  1032;  Hasbrouck  v. 

2  Boakv.  Bank  of  the  State,  6  Ired.  Vandervoort,  4  Sandf.  (N.  Y.)  74. 
(N.  C.)  309;  Durant  v.  Einstein,  5  *  Kemp  v.  Westbrook,  1  Ves.  278; 
Robt.  (N.  Y.)  423  ;  S.  C.  35  How.  Pr.  Vanderzee  i;.  Willis,  3  Bro.  Ch.  21  ; 
223  ;  Genet  v.  Ilowland,  45  Barb.  (N.  White  Mountains  R.  11.  v.  Bay  State 
Y.)  500;  Flowers  v.  Sproule,  2  A.  K.  Iron  Co.  50  N.  li.  57  ;  Hart  v.  Ten 
Marsh.  (Ky.)  54,  56.  Eyck,  2  Johns.  (N.  Y.)  Ch.  G2,  100, 
^    ^  Kemp  V.  Westbrook,   1  Ves.  278;  per  Chancellor  Kent. 

429 


§§  558,  559.]  PAYMENT   AND  REDEMPTION. 

must  be  a  series  of  transactions  on  both  sides,  and  not  merely 
one  item  on  one  side  and  a  number  of  set-offs  on  the  other.^ 

If  the  pledge  secures  a  money  account  of  such  a  nature  that 
the  debtor  would  not  be  presumed  to  know  the  amount  of  his  in- 
debtedness, it  is  not  essential  that  he  should  tender  the  amount 
before  filing  a  bill  to  redeem.  In  fact,  in  such  case,  to  obtain  an 
accounting  is  one  of  the  objects  of  the  bill,  and  it  is  sufficient  if 
the  debtor  proffers  to  pay  whatever  is  found  due  on  such  ac- 
counting.2 

558.  Where  the  property  pledged  is  stock  in  a  corpora- 
tion, and  the  shares  have  been  transferred  upon  the  books  of  the 
company  to  the  name  of  the  pledgee  so  that  he  has  the  legal  title, 
equity  alone  can  restore  possession  of  the  shares  to  the  pledgor, 
by  an  order  for  redeliver3^  The  transaction  is  a  pledge  although 
the  legal  title  passes  to  the  pledgee ;  but  it  partakes  of  the  na- 
ture of  a  mortgage,  and  it  would  seem  that  the  remedy  for  re- 
demption should  be  the  same  as  upon  mortgages.  If  the  pledgor 
seeks  for  an  account  of  receipts  and  dividends,  although  the  law 
could  afford  a  remedy  by  assumpsit  for  these  alone,  equity  has 
also  jurisdiction,  and  more  particularly  where  the  relief  could  not 
be  obtained  at  law  except  by  a  multiplicity  of  suits.^ 

When  stock  is  held  as  collateral  security  for  an  anticipated 
loss  upon  a  mortgage  not  yet  foreclosed  of  a  house,  upon  a  bill 
to  redeem  the  stock,  the  court  in  order  to  ascertain  the  amount  of 
such  loss,  will  order  the  house  to  be  sold,  unless  the  pledgee  will 
accept  the  decision  of  a  master  as  to  the  value.*  The  pledgor  in 
such  case  having  authorized  the  pledgee  to  let  the  mortgaged 
house  until  it  should  be  sold,  but  never  afterwards  having  re- 
quested him  to  sell  it,  the  pledgee  is  not  guilty  of  laches  by  wait- 
ing more  than  five  years  without  selling  it.  Such  delay  does  not 
show  an  election  on  his  part  to  take  the  property  for  his  own,  at  its 
cost,  and  to  waive  all  claim  against  the  pledgee  for  the  loss.^ 

559.  It  has  also  been  held  that  a  court  of  equity  may  com- 

1  Durant  v.  Einstein,  35  How.  (N.     S.  C.  29  Md.  473;  Hasbrouck  v.  Van- 
Y.)  Pr.  223  -,8.0.0  Robt.  423.  dervoort,  4  Sandf.  (N.  Y.)  74. 

2  Beatty  v.  Sylvester,  3  Nev.  228.  •*  Bartlett     v.    Jolinson,    9     Allen 
«  Bryson  v.  Rayner,  25  Md.  424  ;     (Mass.),  530. 


Bartlett  v.  Jolinson,  supra. 


4ao 


ACTION   FOR    CONVERSION   BY    THE   PLEDGEE.       [§§  560,  561. 

pel  a  specific  delivery  to  the  pledgor  of  a  note  or  mortgage 
held  in  pledge  after  the  debt  secured  has  been  paid,  on  the 
ground  that  the  pledgee's  retention  of  the  property  is  in  viola- 
tion of  a  trust.i  But  such  a  proceeding  in  equity  is  exceptional  in 
practice  and  questionable  in  principle  because  full  compensation 
for  a  failure  or  refusal  to  surrender  the  property  pledged  after 
payment  of  the  debt  secured,  can  be. had  in  a  suit  at  law,  except 
in  case  the  pledge  be  an  ornament  or  heir-loom  having  a  special 
value  to  the  owner,  for  the  loss  of  which  damages  in  money  would 
be  no  adequate  compensation. 

560.  Upon  the  death  of  the  pledgor,  his  right  to  redeem 
may  be  enforced  by  his  representatives :  and  on  the  other 
hand  upon  the  death  of  the  pledgee  the  pledgor  may  enforce  his 
right  of  redemption  against  the  pledgee's  representatives.^ 

IV.  Action  for   Conversion  hy  the  Pledgee. 

561.  An  action  to  redeem  the  pledge  is  not  the  pledgor's 
only  or  usual  remedy  for  the  recovery  of  it  after  payment  or 
tender.  He  may  sue  in  trover  for  a  conversion  of  it,  and  this  is 
the  more  usual  and  the  better  remedy  when  the  pledgee  either 
refuses  to  return  it  upon  demand  or  has  wilfully  disposed  of  it 
so  as  to  put  it  out  of  his  power  to  return  it.^  "  Whatever  rights 
the  pledgee  may  have  during  the  continuance  of  his  special  prop- 
erty, when  the  obligation  is  discharged  and  the  property  released, 
the  pledgor  is  entitled  to  the  thing  pledged.  When  the  special 
property  of  the  bailee  ceases,  the  general  owner  may  have  his 
property,  and  if  it  has  been  converted  by  the  bailee,  or  lost 
through  his 'default  or  neglect,  trover  will  lie.     The  right  to  use 

^  Brown   v.  Runals,    14   Wis.   693.  pledged   until  his   debt   is   paid,  and 

By  the  court,  Cole  J.:  "  Where  a  party  then  he  is  bound  to  restore  it  to  the 

'obtains  possession  of  chattels  through  pledgor.     Thus  a  fiduciary  relation  is 

some  trust  or  fiduciary  relation  to  the  created  between  the  parties  in  respect 

owner,  and  then  attempts  to  hold  the  to   the   pledge,  from  which  arise  va- 

possession     wrongfully,    a     court    of  rious  obligations  and  duties." 

equity  may  entertain  a  suit  for  spe-  ^  Cortelyou    v.   Lansing,  2  Caines, 

cific   delivery  of  the  thing   withheld.  Cas.  200. 

The  subject  of  trusts  is  a  matter  pe-  *  Luckey  v.  Gannon,  37  How.  (N. 

culiarly  of  equitable  cognizance,  and  Y.)    Pr.  134  ;    S.    C.    1   Sweeny,   12; 

we    suppose    a    pledge    of     personal  Campbell  v.  Parker,  9  Bosw.  (N.  Y.) 

property  creates  a  trust  in  respect  to  322;     Flowers    v.     Sproule,   2   A.  K. 

such   property.     The    pledgee   lias   a  Marsh.  (Ky.)  54. 

right  to  retain  and  hold  the  property  431 


§§  562,  563.]  PAYMENT   AND   REDEMPTION. 

as  well  as  the  right  to  retain  the  pledge  ceases  the  instant  the 
lien  is  discharged  by  the  tender  or  payment  of  the  debt,  or  the 
performance  of  the  covenant  or  engagement  for  which  the  secu- 
rity is  given."  ^ 

There  may  be  a  conversion  of  a  chose  in  action  which  has  been 
pledged,  as  well  as  a  conversion  of  a  corporeal  chattel,  and  trover 
will  lie  for  such  conversion.? 

562.  Trover  may  be  maintained  for  the  conversion  of  bank 
bills  specially  pledged.  During  the  civil  war  a  customer  of  a 
bank  in  South  Carolina  left  with  the  bank  four  thousand  dollars 
in  its  own  bills  as  security  for  the  return  of  a  like  sum  in  Con- 
federate Treasury  notes,  borrowed  for  a  short  limited  time. 
Within  this  time  he  tendered  this  sum  in  Treasury  notes,  and  de- 
manded the  return  of  the  bank  bills,  and  upon  refusal  of  the 
bank  to  deliver  them  brought  trover  for  their  conversion.  It  was 
held  that  his  right  to  recover  was  not  prejudiced  by  the  fact  that 
the  property  pledged  was  money,  or  the  bills  of  the  bank  itself  ; 
but  that  the  same  principle  was  to  govern  as  if  the  article  de- 
posited had  been  a  watch  or  a  jewel.^ 

563.  A  sale  by  a  pledgee  for  non-compliance  with  a  de- 
mand which  he  has  no  right  to  make,  or  after  tender  of  the 
debt  actually  due,  is  a  conversion.  Thus  a  broker  having  pur- 
chased gold  for  a  customer  upon  a  pledge  of  bank  stock  as  collat- 
eral security,  the  customer  gave  an  absolute  order  to  the  broker 
to  sell  the  gold  at  a  stipulated  price,  at  which  it  might  have  been 
sold ;  but  the  broker,  claiming  the  order  to  be  discretionary,  failed 
to  do  so,  and  the  gold  was  subsequently  sold  for  a  less  price ;  the 
customer  thereupon  tendered  the  broker  a  sum  sufficient  to  pay 
the  balance  of  the  account,  if  the  gold  had  been  sold  in  pursuance 
of  his  order.  After  such  tender  the  broker  sold  the  bank  stock.* 
It  was  held  that  this  was  a  conversion  of  the  stock,  and  that  the 


1  Lawrence  v.  Maxwell,  53  N.  Y.  Baltimore  Marine  Ins.  Co.  v.  Dalryni- 
19;  per  Allen,  J.  pie,  25  Md.  269. 

2  Campbell  v.  Parker,  9  Bosw.  (N.  ^  Abrahams  v.  South  Western  R.  R. 
Y.)  322;  Luckey  V.  Gannon,  37  How.  Bank,  IS.  C.  441;  Willard,  J.,  dis- 
(N.  Y.)  Pr.  134;  S.,C.  1  Sweeny,  12;  senting. 

Decker  v.  Mathews,    12  N.  Y.   313; 
432 


ACTION   FOR   CONVERSION   BY   THE   PLEDGEE.       [§§  564-566. 

customer  was  entitled  to  recover  its  value  after  deducting  the 
actual  indebtedness  for  which  the  stock  stood  in  pledge.^ 

564.  A  pledge  obtained  by  false  representations  of  the 
creditor  vests  no  title  in  him,  and  the  pledgor  may  recover  it 
without  redeeming  it  by  paying  the  debt.  The  pledgee  is  liable 
as  for  a  conversion  of  the  property  in  such  case  if  he  does  not 
surrender  it  upon  demand.  The  contract  though  perfect  in  form, 
being  obtained  by  fraudulent  means,  is  void  in  law.  The  omis- 
sion of  the  pledgor  to  make  inquiries  as  to  the  truth  of  the  rep- 
resentations, cannot  be  imputed  to  him  as  negligence,  and  is  no 
defence  to  his  recovery  of  the  pledge  by  such  false  representa- 
tions.^ 

565.  A  principal  is  liable  for  a  misappropriation  of  nego- 
tiable collaterals  by  his  agent,  through  whom  the  transaction 
was  made.  The  test  of  the  principal's  liability  in  such  a  case  is 
found  in  the  answer  to  the  inquiry,  whether  the  fraudulent  act 
of  the  agent  was  done  in  the  course  of  his  agency,  and  by  virtue 
of  his  authority  as  agent.  If  it  was,  then  the  principal  is  respon- 
sible, whether  the  act  was  merely  negligent  or  fraudulent.  If 
the  agent  misappropriates  collateral  security  which  he  has  pos- 
session of  by  virtue  of  his  agency,  his  principal  is  liable  for  his 
fraudulent  act.^ 

566.  A  conversion  of  the  pledge  occurs  immediately  upon 
the  creditor's  refusal  of  a  proper  tender  of  the  debt  upon  the 
day  of  its  maturity  or  afterwards.^  To  lay  the  foundation  for  an 
action  for  conversion  of  a  thing  pledged  as  security  for  a  debt 
payable  on  a  fixed  day,  the  debtor's  tender  and  demand  should 
be  made  on  the  day  of  the  maturity  of  the  debt,  though  a 
tender  and  demand  made  after  default  would  be  sufiicient  to 
enable  the  pledgor  to  redeem.^  But  if  the  tender  as  made  is 
insufficient,  or  does  not  include  lawful  charges  upon  it  paid  by 
the  creditor,  such,  for  instance,  as  an  assessment  rightfully  paid 

1  Hope  y.  Lawrence,  1  Ilun  (N.Y.),  Ratcliflf  v.  Vance,  2  Mills  (S.  C), 
317.  Const.  239. 

2  Mead  v.  Bunn,  32  N.  Y.  275.  ^  Butts  v.  Burnett,  6  Abb.  (N.  Y.) 

3  Reynolds  v.  Witte,  13  S.  C.  5.  Pr.  N.  S.  302. 
*  McCalla    v.    Clark,   55   Ga.    53 ; 

28  433 


§  567.]  PAYMENT    AND    REDEMPTION, 

by  the  creditor  upon  stock  which  is  the  subject  of  the  pledge,  a 
refusal  of  the  tender  does  not  constitute  a  conversion,  especially 
if  the  creditor  offer  to  accept  the  tender  and  restore  the  pledge, 
if  the  charges  upon  it  be  also  paid.^  After  payment  of  the 
specific  debt  for  the  security  of  which  a  pledge  is  made,  and  a 
demand  and  refusal  to  surrender  tlie  pledge,  the  pledgee's  reten- 
tion of  it  as  security  for  another  debt  is  a  conversion.^ 

567.  If  the  pledgee  has  been  sued  by  a  third  person 
claiming  title  to  the  property  pledged,  his  refusal  to  return 
it  to  the  pledgor,  upon  a  tender  of  the  debt,  does  not  amount  to 
a  conversion.  In  a  case  where  the  pledgor,  in  a  suit  against  him 
for  the  debt,  set  up  a  counter-claim  for  the  conversion  of  the 
pledged  property  by  the  pledgee,  it  appeared  that  the  pledgor 
offered  payment  and  made  demand  for  the  property,  after  the 
pledgee  had  been  sued  by  a  third  person  for  a  portion  of  the 
property,  and  the  pledgee,  upon  the  tender,  offered  to  return 
the  property  not  claimed  by  the  third  person,  but  refused  to 
return  the  property  so  claimed.  It  was  held  that,  under  these 
circumstances,  such  refusal  did  not  amount  to  a  conversion.  The 
court,  upon  this  point,  said  :  "  In  the  action  brought  by  the  third 
party  against  the  present  plaintiff  the  title  was  in  dispute,  and 
as  the  defendant  in  this  action  was  made  a  party  defendant  to 
that,  the  question  of  the  title  was,  of  course,  at  issue  in  that 
action.  Under  such  a  state  of  facts,  there  was,  we  think,  no 
conversion  by  the  plaintiff.  He  offered,  as  it  appears,  on  pay- 
ment of  the  note,  interest  and  costs,  all  the  property  pledged, 
except  that  portion  for  which  the  action  was  pending,  and  this, 
we  think,  under  the  circumstances,  was  all  he  was  bound  to  do. 
To  deliver  the  whole  property  to  the  present  defendant  would 
have  been  a  conversion  as  against  the  other  claimant,  if  she  could 
establish  that  she  had  title  to  the  portion  she  had  sued  for.  But 
as  the  present  defendant,  as  well  as  the  plaintiff,  was  impleaded 
in  the  action  in  which  the  question  of  title  was  to  be  tried,  we 
think  the  court  below  was  correct  in  holding  that,  under  such 
circumstances,  no  such    conversion  was    shown    as    entitled  the 

1  McCalla  v.  Clark,  55  Ga.  53.    But  ^  Luckey    v.    Gannon,    1     Sweeny 

see  Ponce  v.   McElvy,  47  Cal.   154;  (N.  Y.),  12;  S.  C.  37  How.  Pr.  134; 

Flowers  v.   Sproule,  2  A.  K.  Marsh.  6  Abb.  Pr.    (N.   S.)    209  ;    Hardy    v. 

(Ky.)  54.  Jaudon,  1  Robt.  (N.  Y.)  261. 

434 


ACTION   FOR   CONVERSION   BY   THE   PLEDGEE.  [§  568. 

defendant  to  counter-claim  the  value  of  the  property  pledged. 
He  should  have  received  the  portion  of  the  property  pledged, 
which  was  offered  to  be  returned,  and  paid  the  amount  of  the 
note,  interest,  and  costs,  which  would  have  disposed  of  the 
present  action.  But,  standing  in  his  position  as  guarantor  of 
the  title  to  the  plaintiff  as  pledgee,  and  knowing  of  the  pend- 
ency of  the  action  in  which  he  was  bound  to  defend  that  title, 
he  could  not,  we  think,  by  a  simple  demand,  put  the  present 
plaintiff  in  the  position  of  a  wrong-doer,  in  converting  the  prop- 
erty for  which  the  other  action  was  pending."  ^ 

568.  The  pledgee  may  show  in  defence  to  an  action  for 
the  conversion  of  the  pledge  that  it  was  the  property  of  a 
third  person,  to  whom  he  has  returned  it.^  Though  the  pledgee 
impliedly  undertakes  to  return  the  pledge  to  the  pledgor,  the 
latter,  in  the  first  place,  impliedly  warranted  the  property  to  be 
his  own ;  and  if  this  warranty  turns  out  to  be  false,  the  pledgee 
is  absolved  from  his  undertaking  to  restore  the  property  to  the 
pledgor,  but  should  restore  it  to  the  true  owner.  "  My  impres- 
sion is,"  said  Chief  Baron  Pollock,^  "  that  if  a  person  pledges 
with  another  property  to  which  he  has  no  title,  and  which  he  has 
no  right  to  pledge,  the  real  owner  may  interpose  and  get  posses- 
sion of  the  property.  In  the  administration  of  the  criminal  law 
it  constantly  occurs  that  where  stolen  property  has  been  pledged 
the  pawnbroker  is  called  upon  to  deliver  it  to  the  rightful  owner. 
If  a  servant  illegally  pledges  his  master's  plate,  the  servant  can- 
not recover  it  by  an  action,  since  the  pawnbroker  may  inquire 
who  is  really  the  true  owner,  and  deliver  it  to  him."  And  Baron 
Parke,  in  the  same  case,  said  :  "  In  the  ordinary  case  of  a  pledge, 
the  pledgee  impliedly  undertakes  to  deliver  back  the  property  to 

^  Cass    V.     Higenbotam,    27    Hun  Duer(N.  Y.),  79;  Hayden  v.  Davis,  9 

(N,  Y.),   406,   408;    S.  C.  15  N.  Y.  Cal.    573;     Palmtag  v.    Doutrick,    59 

Weekly  Dig.  135.  Cal.  154;   S.   C.  8  Pac.   Coast  L.  J. 

■^  Ogle  V.  Atkinson,  5  Taunt.  759;  884;  Dodge  v.  Meyer,  10  Pac.  Coast 

Wilson  V.  Anderton,  1  B.  &  Ad.  450;  L.J.   169,    182;  Pitt  v.  Albrittou,  12 

Dixon  V.  Yates,  5  lb.  313  ;  Watson  u.  Ired.  (N.  C.)  74. 

Lane,  11  Exch.  769;  Sheridan  v.  New  ^  Clieesnian  v.  Exall,  6  Excb.  341. 

Quay  Co.  4  C.   B.  N.  S.   618;  Biddle  The   contract  in  this   case,  however, 

V.  Bond,  6  Best  &  S.  225;    Thorne  v.  was  held  not  to  be  a  pledge,  but  the 

Tilbury,  3   H.  &  N.  534;    The  Idaho,  dicta  of  the  learned  judges  deservedl 

93  U.  S.  575,  579;  Bales  v.  Stanton,  1  have  great  weight. 

436 


§§  569,  570.]  PAYMENT   AND   REDEMPTION. 

the  pledgor,  when  the  sum  for  which  it  is  pledged  is  paid.  On 
the  other  hand,  the  pledgor  impliedly  undertakes  that  the  prop- 
erty pledged  is  his  own  property,  and  may  be  safely  returned  to 
him." 

The  true  ground  on  which  a  pledgee  or  other  bailee  may  set 
up  the  right  of  a  third  person  to  the  thing  bailed  is  that  indi- 
cated in  a  case  decided  in  the  fourteenth  year  of  the  reign  of 
Elizabeth,!  namely,  that  the  estoppel  which  arises  against  the 
bailee,  through  his  contract  with  the  bailor,  ceases  when  the  bail- 
ment on  which  it  is  founded  is  determined  by  what  is  equivalent 
to  eviction  by  title  paramount.^ 

A  second  pledgee  may  discharge  himself  from  liability  to  the 
owner  of  the  thing  pledged  b}'^  showing  that  he  returned  it  to 
his  own  pledgor  before  the  owner  offered  to  redeem.^ 

569.  A  pledgee  in  setting  up  the  rigfit  of  a  third  person 
to  the  thing  pledged,  of  course  takes  upon  himself  the  burden 
of  proof  that  such  third  person  is  the  rightful  owner.^  Ordi- 
narily he  will  have  the  aid  of  such  third  person  in  establishing 
the  title  of  the  latter ;  for  the  pledgee  can  only  set  up  such  title 
by  the  authority  of  such  third  person.^ 

570.  A  tender  is  necessary  to  a  recovery  of  the  securities. 
Except  in  case  there  has  been  a  wrongful  conversion  of  collateral 
securities,  the  owner  cannot  recover  them  without  first  paying 
or  tendering  the  amount  due  on  the  pledge.^  Such  a  tender  is 
equally  necessary  whether  the  securities  be  in  the  hands  of  the 
original  pledgee,  or  have  been  repledged  or  sold  by  him  to  one 
who  has  loaned  upon  them  or  purchased  them  in  good  faith  with- 
out notice  of  the  owner's  rights.  If  the  owner  can  enforce  any 
right  whatever  to  them  he  can  only  do  so  after  tendering  the 

1  Shelbury  v.  Scotsford,  Yelv.  23.  ^  Palmtag  v.  Doutrick,  59  Cal.  154, 

2  Biddle  v.  Bond,  6  Best  &  S.  225.     168,  per  Thornton,  J. 

Per  Parke,  B.     This  is  the  view  ap-  ®  Donald  v.  Suckling,  L.  R.  1  Q.  B. 

proved  in  Palmtag  v.  Doutrick,  59  Cal.  585;    Talty    v.    Freedman's    Savings 

154,  per  Thornton,  J.  &  Trust  Co.,  93  U.  S.  321 ;  Jarvis  v. 

3  Jarvis  v.  Rogers,  15  Mass.  389.  Rogers,  15  Mass.  389;  S.  C.  13  Mass. 

4  Cheesman  v.  Exall,  6  Exch.  341;  105;  Amos  v.  Sinnott,  4  Scam.  (111.) 
Sheridan  v.  New  Quay  Co.  4  C.  B.  440;  Henry  v.  Eddy,  34  111.  508; 
N.  S.  618  ;  Biddle  v.  Bond,  supra.  Cooper  v.  Ray,  47  111.  53. 

436 


ACTION   FOR   CONVERSION   BY   THE   PLEDGEE.  [§  571. 

debt  secured.  One  so  taking  the  securities  from  the  pledgee  ac 
quires  at  least  the  latter's  lien  and  interest,  whatever-that  may  be. 
A  mere  offer  by  the  original  pledgor  to  pay  the  assignee  the 
amount  due  on  the  securities,  unattended  with  an  actual  tender 
of  the  original  debt  secured,  is  insufl&cient  to  extinguish  the  lien 
and  entitle  such  pledgor  to  a  return  of  the  securities.  Such  offer 
to  pay  is  not  equivalent  to  an  actual  tender.^ 

A  tender  is  not  excused  by  the  fact  that  the  pledgor's  note  is 
in  the  hands  of  his  pledgee.  If  the  note  has  matured,  the  pledgor 
can  safely  pay  the  amount  of  it  to  the  purchaser  or  second 
pledgee  taking  the  security  in  good  faith,  because  he  could  suc- 
cessfully defend  a  suit  upon  the  note,  whether  brought  by  the 
original  pledgee,  or  by  his  indorsee  taking  it  after  maturity. 
The  pledgor  may  also,  after  making  tender,  instead  of  suing  at 
law  for  the  recovery  of  the  securities,  file  a  bill  in  equity,  making 
his  pledgee  and  the  second  pledgee  or  purchaser  defendants,  and 
thus  settle  the  rights  of  all  parties  in  that  litigation.^ 

571.  An  unauthorized  sale  of  the  pledge  by  the  pledgee  is 
not  of  itself  a  conversion,  and  does  not  against  the  will  of  the 
pledgor  create  a  cause  of  action  in  his  favor.  His  cause  of  action 
does  not  arise  until  he  tenders  payment  and  demands  a  return 
of  the  pledge,  and  the  pledgee  neglects  or  refuses  to  return  it.^ 
Such  a  sale  is  not  so  far  tortious  as  to  render  the  contract  void 
ah  initio.'^  "  Outside  of  authority,  the  rule  that  a  sale  by  the 
pledgee  is  not  ipso  facto  a  conversion,  seems  to  be  good  sense. 
The  rights  of  the  parties  are  based  upon  the  contract.  The  sale 
by  the  pledgee  is  wrongful.  If  that  sale  in  and  of  itself  deter- 
mines the  contract  without  more,  then  the  pledgee  by  his  wrong- 
ful act  may  rescind  his  contract  in  spite  of  the  wish  of  the  other 
party  to  it.  I  am  not  aware  of  any  other  case  in  which  this  can 
be  done,  and  I  can  conceive  of  no  reason  for  permitting  it  in  this 
case.  It  may  be  for  the  interest  of  the  pledgor  to  keep  his  con- 
tract alive,  and,  if  it  is  so,  I  cannot  see  why  he  may  not  do  it. 
The  maxim  that  no  one  shall  take  any  advantage  by  his  own 

1  Lewis  V.  Mott,  36  N.  Y.  395,  401.  8  HiiHiday  v.  Ilolgate,  L.  R.  3  Exch, 
The  securities  were  canal  scrip  of  299;  Hopper  v.  Smith,  63  liow.  Pr. 
the  State  of  Illinois;  overruling  Lewis  (N.  Y.)  34,  38;  Butts  i'.  Ikirnett,  6 
V.  Graham,  4  Abb.  (N.  Y.)  Pr.  106.  Abb.  (N.  Y.)  Pr.  N.  S.  302,  304. 

2  Talty  V.  Freedman's  Savings  &  *  First  Nat.  Bank  v.  Boyce,  78  Ky. 
Trust  Co.  93  U.  S.  321.  42;  S.  C.  19  Am.  L.  Reg.  (N.  S.)  503. 

437 


§§  572,  573.]  PAYMENT   AND   REDEMPTION. 

wrongful  act,  raa}'^  fairly  apply  to  this  case,  and  we  may  hold 
that,  although  the  unlawful  sale  does  not  j?er  se  operate  as  a  con- 
version, yet  the  pledgor  may,  at  his  option,  so  consider  it,  and 
that  he  may  regard  the  contract  as  at  an  end,  tender  or  offer  to 
pay  his  debt  and  demand  his  pledge,  or  may  sue  for  damages  for 
the  sale.  I  think  the  cases  sustain  that  rule,  and  that  it  recon- 
ciles the  cases  which  otherwise  appear  to  conflict,  but  do  not  in 
fact.^  I  do  not  think  that  the  plaintiff  was  called  upon  to  notify 
defendant  of  his  disaffirmance  of  the  sale  at  the  time  defendant 
told  him  of  it.  There  is  no  pretence  of  any  estoppel.  Nothing 
has  occurred  to  give  defendant  reason  to  believe  that  the  contract 
was  waived,  and  he  took  no  action  afterwards  on  the  strength  of 
plaintiff's  silence.  As  long  as  the  contract  was  in  force  both 
parties  were  bound  by  it.  The  plaintiff  might  rely  upon  it,  and 
the  defendant  must  keep  ready  to  perform  it.  Neither  party  by 
his  own  act  simply  could  free  himself  from  its  obligations."  ^ 

572.  But  no  formal  demand  or  tender  by  the  pledgor  af- 
ter an  unauthorized  sale  by  the  pledgee  is  necessary,  if  he 
has  substantially  offered  to  redeem,  by  paying  whatever  is 
due.  Thus  a  watch  having  been  pledged  for  the  payment  of  a 
loan  made  without  a  specified  time  for  repayment,  the  creditor 
subsequently  notified  his  debtor  that  he  must  redeem  the  watch 
or  it  would  be  sold.  The  latter  thereupon  deputed  an  agent  to 
effect  a  redemption.  The  agent  called  upon  the  defendant  a 
number  of  times,  with  money  sufficient  for  the  purpose,  and 
offered  to  pay  even  more  than  the  amount  which  the  creditor 
claimed  to  be  owing  him,  but,  upon  one  and  another  pretence, 
the  agent  was  put  off  for  several  months,  when  the  creditor  de- 
clared that  he  had  disposed  of  the  watch  in  exchange  for  another 
and  a  sum  of  money.  It  was  held  that  the  debtor  could  maintain 
a  suit  for  the  conversion  of  the  watch  without  any  formal  demand, 
and  without  a  formal  tender  of  the  money  due.^ 

573.  A  tortious  conversion  by  the  pledgee  through  an 
illegal  sale  of  the  pledge  may  be  waived,  by  the  debtor's  pre- 

^  Strong  V.  Nat.  INIecbanics'  Bank-         ^  pgr  Rumsey,  J.,  Hopper  v.  Smith, 
ing   Asso.  45   N.   Y.    718  ;    Bryan  v.     63  How.  Pr.  (N.  Y.)  34,  38. 
Baldwin,  52  N.  Y.  232.  3  Rosenzweig    v.    Frazer,    82    Ind. 

342. 

438 


ACTION   FOR   CONVERSION   BY   THE   PLEDGEE.       [§§  574,  575. 

senting  a  statement  showing  the  amount  he  claimed  to  be  due 
and  offering  to  receive  the  same  in  full  satisfaction. ^ 

574.  Measure  of  damages.  —  The  value  of  the  property  at 
the  date  of  the  conversion  is  the  true  criteinon  of  damages.^ 

If  at  the  maturity  of  the  debt  for  which  the  pledge  was  made 
the  debtor  tenders  payment  of  it,  and  demands  the  return  of  the 
security  and  this  is  not  returned,  the  conversion  is  made  at  that 
time,  and  the  valuation  of  it  in  a  suit  for  such  conversion  should 
be  made  as  of  the  time  of  such  demand  and  refusal.^ 

575.  A  conversion  of  negotiable  paper  by  one  who  holds 
it  as  collateral  security  renders  him  liable  to  the  general  owner 
for  its  value  at  the  time;  and  this  value  is,  prima  facie^  the  sum 
represented  upon  the  face  of  the  paper  with  interest  according  to 
its  terms.*  If  the  property  be  negotiable  bonds  the  measure  of 
damages  is  the  value  of  the  bonds,  and  of  the  mature  coupons  at 
the  time  of  the  conversion,  with  interest  from  that  time.^ 

If  a  creditor  holding  a  mortgage  note  as  collateral  security 
pledge  it  as  his  own,  he  is  liable  to  the  owner  for  the  full  amount 
of  the  note,  unless  he  clearly  proves  that  the  note  was  worth  less 
than  its  face.  The  burden  is  upon  him  to  prove  that  the  note 
is  not  worth  what  it  calls  for.^ 

If  a  pledgee  of  a  note  does  not  return  it  to  his  debtor  after  the 
payment  of  the  debt,  and  he  shows  no  legal  reason  for  not  doing 
it,  he  is  liable  in  damages  to  the  full  amount  of  the  note.  It 
might  be  a  defence  in  such  case  that  the  maker  of  the  note  is  not 
able  to  pay  it,  or  tliat  it  is  barred  by  the  statute  of  limitations  ; 
but  it  is  no  ground  for  reducing  the  damages,  that  the  pledgee 
has  filed  in  court  an  obligation  to  indemnify  the  pledgor  against 
any  act  done  or  to  be  done  by  the  pledgee  in  respect  to  the  note, 
unless  he  is  able  to  prove  the  loss  of  the  note.' 

1  Butts  V.  Burnett,  6  Abb.  (N.  Y.)  s  Reynolds  v.  Witte,  13  S.  C.  5. 
Pr.  N.  S.  302.  4  Hazzard    v.   Duke,  64    Ind.   220 ; 

2  First  Nat.  Bank  of  Louisville  v.  St.  John  v.  O'Connel,  7  Port.  (Ala.) 
Boyee,  78  Ky.  42;  Newcomb  v.  Bas-  466. 

kett,  14  Bush  (Ky.),  658,  667;  Robin-  5  Merchants'  &  Planters'  Nat.  Bank 

son  v.  Hurley,  11  Iowa,  410;  Ainsworth  v.  Masonic  Hall,  62  Ga,  271. 

V.  Bowen,  9  Wis.  348;  Loomis  t'.  Stave,  «  Laloire  v.  AViltz,  29  La.  Ann.  329. 

72  111.  623;  Eisendratli  v.  Knuuer,  64  '  Thomas    v.    Waterman,    7  Mctc. 

111.  396.  (Mass.)  227. 

439 


§§  576-578.]  PAYMENT   AND   REDEMPTION. 

576.  It  may  be  shown  in  mitigation  of  damages  in  an  ac- 
tion by  the  pledgor  for  the  conversion  of  a  pledge,  that  the  pledgee 
has  applied  the  proceeds  thereof  to  the  use  of  the  pledgor  in  pay- 
ment of  the  debt  secured  or  of  other  debts  due  from  him  to  the 
pledgee.^  This  is  upon  the  principle  that  the  owner  of  property, 
who  has  received  the  value  of  the  property  wrongfully  converted  or 
kept  from  him,  shall  not  recover  that  value  a  second  time  in  an 
action  therefor. 

577.  In  an  action  against  the  pledgee  for  a  conversion 
of  the  pledge,  he  may  recoup  or  offset  the  debt  secured ,2 
though  this  right  does  not  exist  in  favor  of  one  who  is  sued  for 
the  conversion  of  a  chattel  on  which  he  has  merely  a  lien.^ 

A  conversion  of  negotiable  bonds  by  a  pledgee  does  not  pre- 
vent his  recovery  of  what  is  due  him,  but  only  entitles  the 
pledgor  to  offset  the  value  of  the  converted  security.'*  And  so 
a  conversion  by  a  broker  of  stock  pledged  to  him  does  not  oper- 
ate to  extinguish  his  entire  claim  against  his  customer,  but  simply 
to  give  the  customer  a  cause  of  action  for  the  damages  he  has 
sustained,  which  would  be  offset  against  any  sum  found  due  to 
the   brokers.^ 

Whether  in  a  suit  by  the  pledgee  upon  the  debt  secured,  the 
pledgor  can  take  advantage  of  an  irregular  or  prejudicial  sale  of 
the  security  by  recoupment,  is  a  question  left  undecided  by  early 
cases  in  New  York.^ 

578.  Counter-claim.  —  An  action  by  a  pledgor  for  the 
pledgee's  wrongful  refusal  to  deliver  the  property  pledged  after 
payment  of  the  debt  is  an  action  for  the  conversion  of  the 
pledgor's  property,  and  is  founded  upon  his  own  title,  and  not 

1  Hathaway  v.  Fall  River  Nat.  zweig  y.  Frazer,  82  Ind.  342;  Shaw 
Bank,  131  Mass.  14,  17,  per  Soule,  J.     v.  Ferguson,  78  Ind.  547. 

Bailey  v.  Godfrey,  54  111.  507  ;  Bald-  ^  MuUiner   v.   Florence,  3  Q.  B.  D. 

win  V.  Bradley,  69  111.  32;  Belden  v.  484. 

Perkins,  78  111.  449  ;  Loomis  v.  Stave,  ^  Levy  v.  Loeb,  47  N.  Y.  Superior 

72  111.  623.  Ct.  61. 

2  Johnson  v.  Stear,  15  C.  B.  (N.  S.)  ^  Gruman  v.  Smith,  81  N.  Y.  25  ; 
330;  Jarvis  v.  Rogers,  15  Mass.  389;  S.  C.  9  Rep.  748,  reversing  S.  C.  44 
Stearns   v.   Marsh,  4   Denio   (N.  Y.),  Superior  Ct.  389. 

227;  Ward  y.  Fellers,  3  Mich.  281,288;         ^  WiUoughby  v.  Comstock,  3  Hill, 
Belden  i'.  Perkins,  78  111.  449;  Rosen-     389;  Taggard  v.  Curtenius,  15  Wend. 

155. 

440 


ACTION   FOR   CONVERSION   BY   THE   PLEDGEE.  [§  579. 

upon  any  promise  of  the  pledgee.  A  counter-claim  to  such  suit 
for  a  debt  not  secured  by  the  pledge  cannot  be  set  up  by  the 
pledgee.!  But  the  pledgee  is  allowed  to  recoup  the  amount  of 
the  debt  secured  ;  or,  in  other  words,  the  pledgor  is  allowed  to 
recover  the  value  of  the  stock  at  the  time  of  the  conversion,  less 
the  amount  of  the  debt.^ 

579.  In  case  of  a  rehypothecation,  the  original  contract  of 
pledge  not  being  destroyed,  the  pledgor  can  recover  from  the 
second  pledgee  the  thing  pledged  only  by  paying  to  him  the 
amount  of  debt  due  to  the  first  pledgee.-^  In  trover,  by  the 
owner  against  a  second  pledgee,  he  may  recover  the  value  of 
the  property,  after  allowing  the  amount  due  from  the  owner  to 
his  pledgee  in  reduction  of  the  damages.*  It  is  essential,  how- 
ever, that  the  second  pledgee  should  have  acted  in  good  faith  in 
taking  the  property  in  pledge,  and  should  have  taken  it  for  value 
without  knowledge  of  the  prior  pledge.  If  the  factor,  or  original 
pledgee,  had  all  the  indicia  of  the  right  of  property  in  the  thing 
pledged,  and  his  pledgee  was  without  knowledge  of  the  plaintiff's 
rights,  and  gave  a  valuable  consideration,  the  measure  of  damages 
is  always  the  actual  loss  the  plaintiff  has  sustained ;  and  this  is 
the  value  of  the  property,  less  the  sum  due  the  plaintiff  from  the 
factor  or  original  pledgee.^ 

1  Smith  V.  Hall,  67  N.  Y.  48.  but  operates  to  put  an  end  to  the  con- 

2  Jarvis  v.  Rogers,  15  Mass.  389;  tract  altogether,  so  as  to  entitle  the 
cited  and  approved  in  Johnson  v.  pawnor  to  have  back  the  thing  pledged 
Stear,  15  C.  B.  (N.  S.)  330;  Smith  v.  without  payment  of  the  debt.  I  am 
HaW,  supra ;  Baker  i-.  Drake,  53  N.  Y.  of  opinion  that  the  transfer  of  the 
211;  S.  C.  66  N.  Y.  518  ;  Stearns  v.  pledge  does  not  put  an  end  to  the  con- 
Marsh,  4  Denio  (N.  Y.),  227  ;  Balti-  tract,  upon  which  the  owner  may  bring 
more  Marine  In?.  Co.  v.  Dalrymple,  25  an  action  for  nominal  damages,  if  he 
Md.  242,  269,  307.  has  sustained  no  substantial  damages, 

3  Donald  v.  Suckling,  L.  R.  1  Q.  B.  for  substantial  damages  if  the  thing 
585,  597;  Johnson  v.  Stear,  supra;  pledged  is  damaged  in  the  hands  of 
flalliday  v.  Holgate,  L.  R.  3  Ex.  the  third  party,  or  the  owner  is  preju- 
299;  Evans  r.  Potter,  2  Gall.  13;  diced  by  delay  in  not  having  the  thing 
Talty  V.  Freedman's  Savings  &  Trust  delivered  to  him  on  tendering  the 
Co.  93  U.  S.  321;  Lewis  v.  Mott,  36  amount  for  which  it  was  pledged." 
N.  Y.  395,  400.  *  First  Nat.   Bank  of  Louisville  v. 

In  Donald  v.  Suckling,  supra,  Cock-  Boyce,   78  Ky.  42  ;   Neiler  v.  Kelley, 

burn,   C.   J.,    says  :     "  The    question  69  Pa.  St.  403  ;   Work  v.  Bennett,  70 

here  is,  whether  the   transfer  of  the  Pa.  St.  484  ;   Baltimore  Mar.  Ins.  Co. 

pledge   is  not   only  a   breach  of  the  v.  Dalrymple,  sujira. 

contract  on  the  part  of  the  pawnee,  '      ''  First  Nat.   Biuik  of  Louisville   v. 

441 


§§  580,  581.]  PAYMENT    AND   REDEMPTION. 

580.  If  the  pledgee  has  sold  the  pledged  chattels  and  con- 
verted them  into  money  the  pledgee  may,  if  he  choose, 
bring  assumpsit  for  the  money,  in  which  event  he  can  recover 
only  the  amount  actually  received  by  the  pledgee  for  the  prop- 
erty, less  the  amount  of  the  debt  secured  by  the  pledge.^ 

V.  Statute  of  Limitations. 

581.  A  pledgee  has  no  right  to  treat  the  property  pledged 
as  absolutely  his  own  after  the  note  or  other  obligation  given 
by  the  pledgor  is  barred  by  the  statute  of  limitations.  After 
the  maturity  of  such  obligation,  the  pledgee  may,  upon  giving 
notice  to  the  pledgor,  sell  the  property  and  apply  the  proceeds 
to  the  debt.  If  he  does  not  do  this  he  continues  to  hold  it  in 
trust  for  the  benefit  of  all  parties.  The  statute  affects  merely 
the  personal  remedy  against  the  pledgor,  and  does  not,  on  the 
one  hand,  defeat  the  lien  of  the  pledgee  upon  the  property,  nor, 
on  the  other,  enlarge  that  lien  to  an  absolute  title  to  the  prop- 
erty .^  It  is  true,  however,  that  after  a  long  lapse  of  time  without 
any  claim  on  the  part  of  the  pledgor  to  redeem,  his  right  might 
be  deemed  to  be  extinguished  and  the  title  absolute  in  the 
pledgee.^  Thus  where  certain  shares  of  bank  stock  were  assigned 
as  collateral  security  for  the  payment  of  a  time  note,  and  six 
years  after  the  maturity  of  the  note  the  stock  was  not  of  sufficient 
value  to  pay  the  debt,  and  the  creditor  had  then  and  always 
treated  the  shares  as  his  own,  a  court  of  equity  after  the  lapse  of 
eleven  years,  when  the  shares  had  risen  in  value,  refused  to  grant 
relief.* 

In  another  case  the  pledgor  was  not  allowed  to  redeem  after 
the  lapse  of  ten  years  from  the  time  the  debt  secured  became 
due.^     The  property  pledged  in  this  case  consisted  of  shares  in 

Boyce,  78  Ky.  42;   S.  C.  28  Am.  Law  bankrupt  law  prohibiting  suits  by  or 

Reg.  503.  against  assignees  after  two  years  from 

1  Cusliman  v.  Hayes,  46  111.  145;  the  accruing  of  the  right  of  action. 
Read  v.  Lambert,  10  Abb.  (N.Y.)  Pr.  Moses  v.  St.  Paul,  supra. 

N.  S.  428.  8  Story     on      Bailments,     §     298  ; 

2  Kemp  V.  Westbrook,  1  Ves.  278;  Mims  i'.  Mims,  3  J.  J.  Marsh.  (Ky.) 
Hancock   v.  Franklin    Ins.   Co.,    114     103,  106. 

Mass.    155;    Whelan    v.   Kinsley,   26  ^  Waterman  v.  Brown,  31   Pa.  St. 

Ohio  St.  131;  Moses  v.   St.  Paul,  67  161. 

Ala.  168,  172,  per  Brickell,  C.  J.  ^  Roberts  i'.  Sykes,  30  Barb.  (N.  Y.) 

This  principle   has   no   application  173. 
to  the  provision  of  the  United  States 

442 


STATUTE   OF   LIMITATIONS.  [§§  582,  583. 

a  corporation  which  was  paying  dividends  and  the  debtor  con- 
tended that  the  statute  of  limitations  would  not  commence  run- 
ning until  the  debt  should  be  paid  out  of  the  dividends  ;  but  in 
the  absence  of  any  allegation  or  proof  of  an  agreement  that  the 
pledgee  should  keep  the  stock  until  he  should  be  repaid  out  of 
the  dividends,  the  court  held  that  the  pledgor  was  not  entitled  to 
be  relieved  from  the  statute  of  limitations. ^ 

In  Louisiana  it  is  provided  by  the  code  that  the  creditor  can 
not  acquire  the  pledge  by  prescription,  whatever  may  be  the 
time  of  his  possession.^ 

682.  On  the  other  hand  a  debtor  cannot  by  reason  of  his 
debt  becoming  barred  by  the  statute  recover  back  the  se- 
curity pledged.  Nothing  short  of  payment  or  tender  of  the 
debt  will  discharge  the  lien  and  entitle  the  debtor  to  its  return. 
The  statute  of  limitations  does  not  extinguish  the  debt  but  only 
the  remedy  to  enforce  it.^ 

583.  The  statute  commences  to  run  after  a  tender  by  the 
pledgor  and  refusal  by  the  pledgee  to  restore  the  thing 
pledged;"*  or  after  any  act  on  his  part  which  would  show  his 
determination  to  dissolve  his  trust  relation  to  the  pledgor.^ 

1  Roberts  v.  Sykes,  30  Barb.  4  Jb.  221 ;  Oakley,  in  re,  2  Edw.  (N. 
(N.Y.)173.  Y.)Ch.  478. 

2  R.  Civ.  Code,  1870,  Art.  3175.  ^  Whelan   v.  Kinsley,  26  Ohio   St. 
8  Jones     V.    Merchants'    Bank    of     131,  per  Mcllvaine,  C.  J, 

Albany,  6  Robt.  (N.  Y.)  162;  S.  C.         ^  Jones  v.  Thurmond,  5  Tex.  318. 

443 


CHAPTER  XV. 

BANKRUPTCY   AND   INSOLVENCY. 

584.  Upon  the  bankruptcy  of  the  pledgor,  the  pledgee  is 
still  entitled  to  hold  possession  of  the  property  pledged,  except 
in  case  the  pledge  was  made  in  fraud  of  the  bankrupt  law,  and 
is  consequently  void,  when  of  course  the  assignee  in  bankruptcy 
may  disregard  the  contract  of  pledge,  and  recover  the  property 
for  the  benefit  of  the  creditors.  The  only  rights  of  the  assignee 
as  regards  a  valid  pledge  are  either  to  redeem  the  property  or 
under  order  of  court  to  sell  it  subject  to  the  lien  of  the  pledge.^ 
The  latter  may  at  his  option  rely  wholly  upon  his  security  and 
refuse  to  prove  his  claim  in  the  bankruptcy  court ;  and  in  doing 
so  he  only  loses  the  privilege  of  participating  in  the  distribution 
of  the  bankrupt's  estate.  The  pledgee  may,  notwithstanding  the 
pledgor's  bankruptcy,  proceed  upon  default  to  sell  the  pledge  in 
the  usual  way  ;  ^  but  it  would  seem  that  after  the  assignment, 
notice  of  the  sale  should  be  given  to  the  assignee  in  bankruptcy. 

585.  As  a  general  rule  an  assignee  for  the  benefit  of  credi- 
tors holds  the  property  assigned  subject  to  the  same  equities 
as  the  debtor  held  it.^ 

But  this  general  proposition  is  subject  to  exceptions.  There 
are  many  transactions  which  are  binding  on  the  debtor  while  not 
binding  on  the  assignee.  Pledges  made  for  the  actual  purpose 
of  defrauding  creditors  are  of  this  class,  and  so  are  pledges  made 
contrary  to  statute  or  to  the  policy  of  the  law.     The  general  rule 

1  Yeatman  v.  Savings  Inst.  95  U.  S.  Mitchell  v.  Winslow,  2  Story,  630  ; 
764;  Jerome  v.  McCarter,  94  U.  S.  Gibson  u.  Warden,  14  Wall.  244;  Cook 
734 ;  Moses  v.  St.  Paul,  67  Ala.  168  ;  v.  Tullis,  18  Wall.  332  ;  Partee  v.  Corn- 
Dayton  Nat.  Bank  v.  Merchants' Nat.  ing,  9  La.  Ann.  539;  Casey  v.  La 
Bank,  37  Ohio  St.  208;  Dowler  v.  Societe  de  Credit  Mobiher,  2  Woods, 
Cushwa,  27  Md.  354.  77,    84,    per   Woods,   J. ;    Dowler   v. 

2  Jerome  v.  McCarter,  supra.  Cushwa,  supra. 

3  Mitford  V.  Mitford,  9  Ves.  Jr.  87; 

444 


BANKRUPTCY   AND   INSOLVENCY.  [§§  586,  587. 

is  restricted  to  cases  in  which  the  creditor  claiming  adversely 
to  the  assignee  has  a  clear  legal  or  equitable  title  to  the  property- 
claimed  ;  and  does  not  apply  to  cases  in  which  the  creditor  claims 
a  security  denied  by  the  law.^  An  assignee  or  trustee  for  credi- 
tors may  well  oppose  any  security  claimed  by  a  creditor,  when 
the  law,  unaided  by  a  bond  fide  purchase  or  judgment,  would  re- 
gard the  security  as  void  against  the  general  creditors  in  a  direct 
contest  between  them  and  the  creditor  claiming  such  security 
or  preference ;  even  though  the  debtor  himself,  on  account  of 
some  personal  disability  arising  from  his  own  acts  or  engage- 
ments, could  not  resist  the  claim.^  A  receiver  of  a  national 
bank,  which  cannot  be  put  into  bankruptcy,  but  can  only  be 
wound  up  under  the  peculiar  provisions  of  the  banking  act,  has 
the  same  power  in  this  respect  that  an  assignee  has ;  otherwise 
the  absurd  consequence  would  follow,  that  the  property  of  a  bank 
disposed  of  by  voluntary  conveyances,  or  pledges  not  good  as 
to  third  persons,  would  be  beyond  the  reach  of  creditors.^ 

586.  An  assignee  who  collects  securities  pledged  by  the 
bankrupt  will  be  directed  to  apply  the  proceeds  for  the  bene- 
fit of  the  pledgee.  Thus  a  debtor  having  pledged  a  promissory 
note  already  pledged  and  delivered  as  security  by  him,  his  assignee 
received  it  from  the  first  pledgee,  and  collected  it ;  but  the 
second  pledgee  was  allowed  upon  petition  to  follow  the  proceeds 
into  the  hands  of  the  assignee.  This  right  does  not  depend  upon 
any  regulation  of  the  Bankrupt  Act,  but  upon  the  general  prin- 
ciple of  equity  that  a  party  interested  in  property  may  follow 
his  interest  into  any  new  form  into  which  it  may  have  been 
changed  without  his  fault  or  consent.* 

587.  The  pledgor  may  prove  his  whole  claim  against  the 
pledgor's  estate  in  insolvency  without  deducting  the  value 
of  his  security.  This  is  the  rule  more  generally  adopted  in  the 
absence  of  a  statutory  requirement.  If  the  dividend  so  reduces 
the  debt  that  the  collateral  security  will  more  than  pay  it,  the 

^  Casey  v.  Cavaroc,  96   U.  S.  467,  ^  Casey    v.    Cavaroc,   supra.      See 

487;  Bank  of  Alexandria  v.  Herbert,  Casey  v.  La  Societd  de  Credit  Mobi- 

8  Cranch,  36.  Her,  2  Woods,  77,  84. 

2  Casey    v.    Cavaroc,    supra,    per  ^  Wiley,  m  re,  4  Biss.  171. 
Bradley,  J. 

445 


§  587.]  BANKRUPTCY   AND   INSOLVENCY. 

security  must  be  redeemed  for  the  benefit  of  the  general  cred- 
itors.i  This  rule  gives  effect  to  the  equitable  principle  that  a 
creditor's  diligence  shall  be  rewarded  by  giving  liim  liis  full  legal 
rights.2  Aside  from  the  accidents  of  the  insolvency  or  death  of 
the  debtor,  a  creditor  holding  a  mortgage  or  a  pledge  has  a  double 
security.  "  He  has  a  right  to  proceed  against  both,  and  to  make 
the  most  he  can  of  both  ;  why  he  should  be  deprived  of  this  right 
because  the  debtor  dies  insolvent,  is  not  very  easy  to  see."  ^ 

Thus  a  creditor  holding  a  mortgage  was  allowed  a  dividend 
under  his  debtor's  assignment  for  the  benefit  of  his  creditors  upon 
his  whole  claim,  although  he  had  collected  the  greater  part  of  the 
claim  out  of  the  mortgaged  property,  the  amount  collected  and 
the  dividend  together  not  being  sufiicient  to  satisfy  the  debt ;  and 
was  not  restricted  to  a  dividend  on  his  claim  as  reduced  by  the 
proceeds  of  the  mortgage.  It  is  true  that  before  the  proceedings 
on  the  mortgage,  the  account  of  the  assignees  had  been  filed,  and 
an  auditor  had  reported  a  scheme  of  distribution,  but  the  dividend 
apportioned  to  the  claim  was  retained  under  control  of  the  court 
until  the  proceedings  on  the  mortgage  were  terminated.  Then 
he  was  permitted  to  take  the  dividend  on  his  whole  claim  as  it 
was  before  any  portion  of  it  had  been  paid.* 

But  under  an  assignment  for  the  benefit  of  creditors,  a  creditor 
holding  notes  of  third  persons  as  collateral  security,  upon  collect- 
ing these  notes  before  a  dividend  is  made,  under  the  assignment, 
must  credit  the  amount  upon  the  principal  debt,  and  take  a  divi- 
dend under  the  assignment  upon  the  remainder  only  of  the  debt; 
he  cannot  collect  the  colhxterals  and  then  claim  a  dividend  upon 
the  principal  debt  as  it  was  at  the  time  of  the  assignment.  The 
law  applies  the  collections  to  the  payment  of  the  debt,  so  that 
the  creditor  ceases  to  be  the  holder  of  the  collateral  notes.^ 

1  Story's  Eq.  Jur.  §  564;  Moses  v.  (N.  Y.)  Pr.  423;  S.  C.  2  Abb.  Pr.  N. 

Kanlet,  2  N.  H.  488;  Putnam  v.  Rus-  S.  275. 

sell,  17  Vt.  54;  West  y.  Bank  of  Rut-  ^  jg^vis  i;.    Smith,   1    Sheldon    (N. 

land,  19  Vt.  403;  Walker  v.  Barker,  Y.),  189,  194;  ^S.  C.  7  Abb.  Pr.  (N.  S.) 

26    Vt.    710;    Findlay   v.   Hosmer,   2  217,  per  Hasten,  J. 

Conn.  350  ;  Jervis  v.  Smith,  1  Sheldon  3  Mason  v.  Bogg,  2  Mylne  &  C.  443, 

(N.   Y.),    189;    S.    C.    7    Abb.    Pr.  448,  per  Lord  Chancellor  Cottenham. 

(N.  S.)  217;  Van  Mater  i;.  Ely,  12  N.  J.  *  Morris  v.  Olwine,  22  Pa.  St.  441. 

Eq.  271  ;  Shunk's  Appeal,   2  Pa.  St,  See  also  Miller's  Appeal,  35  Pa.  St. 

304;    Wurtz   v.  Hart,   13   Iowa,  515;  481. 

Logan  V.  Anderson,  18  B.  Mon.  (Ky.)  ^  Midgeley  v.  Slocomb,  sujira. 
114;  Midgeley  v.  Slocomb,  32   How. 

446 


BANKRUPTCY  AND  INSOLVENCY.  [§  588. 

688.  But  the  rule  adopted  by  other  courts  is,  that  a  credi- 
tor holding  a  pledge  is  admitted  to  prove  only  the  balance  of  his 
debt,  after  deducting  the  value  of  his  security,  in  proceedings 
under  bankrupt  or  insolvent  laws  of  this  countr}'  and  of  Eng- 
land.^ "  The  reason  is  obvious,"  said  Lord  Eldon.^  "  Till  his 
debt  has  been  reduced  by  the  proceeds  of  that  sale,  it  is  impossible 
correctly  to  say  what  the  actual  amount  of  it  is ;  and  with  this 
further  consideration,  that  in  the  event  of  any  doubt  attaching 
upon  his  right  to  retain  the  security,  he  is  enabled  in  a  contest 
with  the  rest  of  the  creditors  to  sustain  his  disputed  title  in  a 
situation  of  predominant  advantage."  But  it  is  a  disputed  point 
whether  this  rule  is  altogether  one  of  statute,  or  whether  it  is 
founded  upon  principles  of  equity,  and  is  therefore  applicable  to 
cases  not  governed  by  the  statute,  such  as  voluntary  assignments 
by  insolvent  debtors  in  trust  for  the  benefit  of  their  creditors. 
Thus  on  the  one  hand  the  statute  rule  in  bankruptcy  was  applied 
in  Massachusetts  to  the  settlement  of  estates  of  deceased  insol- 
vent debtors,  the  court  saying :  ^  "  The  rule  adopted  by  the  Court 
of  Chancery  in  England,  and  enforced  by  the  Commissioners  of 
Bankruptcy,  is  certainly  just  and  equitable ;  requiring  that  every 
creditor  having  a  mortgage  or  other  security,  shall,  before  he  is 
admitted  to  prove  his  debt,  surrender  his  security  for  the  benefit 
of  the  other  creditors,  the  proceeds  of  the  sale  going  into  the 
common  fund  ;  or  shall  suffer  the  pledge  to  be  sold,  taking  the 
proceeds  towards  his  debt,  and  proving  under  the  commission  for 
the  residue.  If  it  were  not  so,  the  equality  intended  to  be  pro- 
duced by  the  bankrupt  laws  would  be  grossly  violated  ;  and  the 
creditor  holding  the  pledge  would,  in  fact,  have  a  greater  security 
than  that  pledge  was  intended  to  give  him.  For  originally  it 
would  have  been  security  only  for  a  proportion  of  the  debt  equal 
to  its  value  ;  whereas  by  proving  the  whole  debt,  and  holding 
the  pledge  for  the  balance,  it  becomes  security  for  as  much  more 

^  This  was  the  rule  under  the  re-  308 ;  reaffirmed  in  Farnuna  v.  Boutelle, 

cent    Bankrupt    Act   of    the    United  13  Mete.  159  ;  Richardson  v.  Wynian, 

States.     Brand,   in  re,  3  N.  Bank  R.  4  Gray,  553  ;  Haverhill  Loan  &  Fund 

324;  Newland,  mre,  7  lb.  477;  ,S'.  C  6  Asso.  v.  Cronin,   4    Allen,   141,    144; 

Ben.  342;  Streeper  v.  McKee,  86   Pa.  Middlesex  Bank  v.  Minot,  4  Met.  325; 

St.  188.  Lauokton  v.  Wolcott,  G  Met.  305. 

This  is  also  the  rule  in  Massachu-  ^  Smith,  ex  parte,  2  Rose,  63. 

setts:    Amory   v.   Francis,    16   IMass.  *  Axwovy  v.  Vvancis,  supra. 

447 


§  588.]  BANKRUPTCY    AND   INSOLVENCY. 

than  its  value,  as  is  the  dividend  which  may  be  received  upon  the 
whole  debt." 

But  it  is  obvious  that  this  rule  can  have  no  proper  application 
to  a  case  where  the  collateral  security  is  furnished  by  a  third 
person  not  primarily  responsible  for  the  debt,  but  as  a  surety  ; 
because,  if  the  security  were  first  applied  to  the  reduction  of  the 
debt,  it  would  eo  instanti  create  a  new  debt  of  equal  amount  in 
favor  of  the  surety  whose  property  is  thus  expended.^ 

And  so  if  a  debtor  die  and  his  estate  be  declared  insolvent,  a 
creditor  who  holds  property  of  such  debtor  in  pledge  cannot  prove 
his  claim  against  the  estate,  until  he  has  first  sold  the  property 
and  deducted  the  proceeds  from  his  claim,  or  until  the  value  of 
the  property  has  been  ascertained,  by  a  jury  or  otherwise,  and 
that  value  deducted.  Proof  can  only  be  made  for  the  remainder 
of  the  claim  after  deducting  the  value  of  the  security  as  ascer- 
tained in  one  mode  or  the  other.^ 

A  creditor  after  having  his  collateral  securit}^  appraised,  and 
proving  his  debt  for  the  balance,  may  then  proceed  to  collect  or 
enforce  the  collaterals ;  and  his  right  to  do  so  is  not  affected  by 
the  fact  that  these  were  appraised  at  a  nominal  value.^ 

1  Savage  v,  Winchester,  15  Gray  ^  Streeper  v.  McKee,  6  Weekly 
(Mass.),  453.  Notes  Gas.  169;  .S".  C.  86  Pa.  St.  188. 

2  Middlesex  Bank  v.  Minot,  4  Mete.  This  ease  arose  under  the  United 
(Mass.)  325.  States  Bankrupt  Act. 

448 


CHAPTER  XVI. 


REMEDIES  OF  THE  PLEDGEE  AFTER  DEFAULT. 


L  Suit  upon  the  debt,  589-598. 
II.  Attacliment   of   the   pledged   property, 

599-001. 
III.  Sale  of  the  pledge  at  common  law,  602- 

615. 


IV.  Statutory  provisions  regulating  sales  of 

property  held  in  pledge,  610-639. 
V.  Sales  under  powers  of  sale,  031-639, 
VI.  Sales    under   proceedings    in    equity, 
640-648. 
VII.  Surplus  proceeds  of  sale,  649,  650. 


I.  Suit  upon  the  Debt. 

589.  In  general.  —  As  with  a  mortgage  so  with  a  pledge,  the 
creditor  may  u|^on  default  pursue  any  or  all  of  his  several  reme- 
dies. The  remedies  upon  a  pledge  are  also  similar  to  those  upon  a 
chattel  mortgage.  They  are,  1,  by. action  upon  the  debt  secured; 
2,  by  sale  of  the  pledge  at  common  law  without  judicial  proceed- 
ing ;  3,  by  sale  under  statutory  provisions  ;  4,  by  sale  under  a 
decree  of  a  court  of  chancery  ;  5,  by  sale  under  a  special  power 
of  sale. 

The  remedy  by  sale,  however,  does  not  apply  in  case  of  pledges 
of  negotiable  paper  and  other  choses  in  action,  which  have  no 
recognized  market  value,  unless  a  special  power  of  sale  be  given.^ 

590.  The  holding  of  collateral  security  for  a  debt  does  not 
impair  or  suspend  the  right  of  action  upon  it,  unless  so  agreed 
upon  by  the  parties,  whether  the  collateral  be  given  at  the  time 
the  debt  was  contracted  or  afterwards.^     "  If  I  pawn  goods  to  A 

1  See  Chapter  xvii.  153;  Rozet  v.  McClellan,  48  III.  345; 

2  South  Sea  Co.  u.  Duncomb,  Str.  2  Archibald  v.  Argall,  53  111.  307;  Du- 
919;  Ernes  v.  Widdowson,  4  Car.  &  gan  v.  Spvn^uQ,  2lnd.  GOO;  Komniil  v. 
P.  151;  Whitwell  v.  Brigham,  19  Wilson,  4  Wash.  C.  C  308;  Jones  r. 
Pick.  (Mas?.)  117;  Beokwith  v.  Sib-  Scott,  10  Kans.  33;  Bank  r.  Wood- 
ley,  11  lb.  482;  Cornwall  v.  Gould,  4  ruff,  34  Vt.  89;  Robinson  v.  Ilnrlcy, 
lb.  444,  448;  Whilakcr  t\  Sumner,  20  11  Iowa,  410;  Butterworlh  v.  Ken- 
Pick.  (Mass.)  399;  Darst  r.  Bates,  95  nedy,  5  Bosw.  (N.  Y.)  143;  Lang- 
Ill.  493;  AVilhclm  v.  Schmidt,  84  111.  don  v.  Bucl,  9  Wend.  (N.  Y.)  80,  83; 
187;  Cushman  v.   Hayes,  46  111.  145,  Elder  v.  Rouse,  15   lb.   218;  Sonoma 

29  449 


§§  591,  592.]      REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

for  such  a  sum,"  says  Chief  Justice  Holt,  "  A.  may  have  debt  for 
the  money,  notwithstanding  his  having  a  pawn."  ^  The  pledgee 
may  also  have  his  remedy  against  the  person  of  the  debtor  and 
arrest  and  imprison  him  upon  execution  for  the  debt,  where  that 
remedy  is  given,  without  impairing  his  right  to  enforce  the 
pledge.2  He  may  attach  and  levy  upon  other  property  of  the 
debtor  without  forfeiting  his  pledge."  In  short,  in  the  case  of  a 
pledge  just  as  in  the  case  of  a  mortgage,^  the  creditor  may  use 
any  remedy  he  has  against  the  debtor  or  his  property  for  the  col- 
lection of  the  principal  debt,  without  destroying  or  impairing  his 
security  for  the  debt  until  it  is  actually  paid."^  A  creditor  is  en- 
titled to  hold  his  securities,  whatever  they  may  be,  until  he  gets 
his  pay.  The  securities  belong  to  him,  and  he  may  enforce  the 
debt  without  surrendering  them. 

591.  The  recovery  of  a  judgment  upon  the  principal  debt 
does  not  affect  the  pledgee's  right  to  hold  and  enforce  a  pledge 
taken  to  secure  that  debt.  Though  the  original  debt  is  merged 
in  the  judgment,  and  is  thenceforth  evidenced  by  a  higher  secu- 
rity, the  debt  in  fact  remains  in  a  new  form  and  the  property 
pledged  for  its  payment  still  remains  liable  therefor.^ 

Neither  does  the  creditor  lose  his  right  to  hold  the  collateral 
security  by  suing  the  principal  debt,  recovering  execution,  and 
arresting  the  debtor  thereon.  It  is  of  the  very  nature  of 
collateral  security  that  it  may  be  resorted  to  for  a  satisfaction 
of  the  principal  debt,  if  its  payment  shall  not  otherwise  be  ob- 
tained.^ 

592.  The  debt  may  be  enforced  though  the  pledge  has 
been  discharged  by  a  tender  of  the  debt  at  its  maturity,  unless 
the  debt  be  payable  in  specific  articles  of  personal  property,  when 
a  tender  of  such  articles  may  discharge  the  debt,  and  the  articles 

Valley  Bank  v.  Hill,  59  Cal.  107;  5.         *  See  Jones  on  Mortgages,  §  1215; 

C  9  Rep.  G8;  8  Pac.  Coast  L.  J.  666.  Jones  on  Chattel  Mortgages,  §  758. 
1  Anon.  12  Mod.  564.  6  jo^gg  ^,_  ^^^^^^  jq  j^jj°g_  33.  g^jj^jj 

3  South  Sea  Co.  v.  Duncomb,  2  Str.  v.  Strout,  63  Me.  205 ;  Charles  v.  Co- 

919;  Morse  v.  Woods,  5  N.H.  297.  ker,    2   S.   C.    122;     Sonoma    Valley 

8  Taylor      v.     Cheever,     6      Gray  Bank  v.  Hill,  supra. 

(Mass.),  146;  Cleverly  v.  Brackett,  8         «  Smith  v.   Strout,  supra;  Morse  v. 

Mass.   150,  to  the  contrary,  is  without  Woods,  supra. 

support  and  is  not  good  law. 

450 


SUIT   UPON   THE   DEBT.  [§  593. 

tendered  will  become  the  property  of  the  creditor,  and  may  after- 
wards be  kept  at  his  risk  and  expense.  Bat  ordinarily  a  tender 
does  not  relieve  the  debtor  from  his  personal  liability  to  pay  the 
debt.i 

693.  The  return  of  the  pledge  is  not  a  condition  to  be 
performed  before  or  concurrently  with  the  payment  of  the 
debt  secured.^  If  one  loans  money  upon  the  security  of  a  gun, 
the  lender  may  recover  the  amount  of  the  loan,  without  first  re- 
turning the  giui.^  Even  an  agreement  that  npon  a  partial  pay- 
ment of  the  debt,  a  proportionate  part  of  certain  shares  pledged 
to  secure  it  shall  be  given  up,  is  construed  to  mean,  that  the  shares 
are  to  be  returned  after  the  money  is  paid.  The  creditor  may 
bring  suit  upon  the  debt  without  first  returning  the  shares  ; 
thougli  of  course  if  he  should  not  return  the  shares  after  payment 
of  the  debt  or  after  judgment  recovered  upon  it,  trover  would  lie 
against  him  for  their  value.* 

Even  a  covenant  on  the  part  of  the  pledgee  not  to  sue  until 
the  securities  shall  be  given  up,  cannot  be  set  up  in  bar  to  a  suit 
by  him  brought  before  giving  up  the  securities.  The  damages 
to  be  recovered  for  a  breach  of  covenant  not  to  sue  within  a  lim- 
ited time,  may  be  much  less  than  the  demand ;  and  it  would 
therefore  be  unjust  to  allow  the  covenant  to  bar  the  whole 
demand.  Such  a  covenant  is  distinguished  from  a  perpetual 
covenant  not  to  sue,  which  is  held  to  be  a  bar,  to  avoid  circuity 
of  action,  as  the  damages,  if  cross-actions  were  brought,  would 
be  the  same.^ 

In  California  under  a  statute  which  in  effect  makes  the  stock- 
holders in  a  corporation,  as  regards  its  creditors,  principal  debtors 
and  not  merely  sureties,  it  is  held  that  a  pledgee  of  the  corpora- 
tion may  maintain  a  suit  against  a  stockholder  although  he  still 
retains  in  his  hands  property  which  he  has  received  from  the 
corporation  in  pledge.^ 

1  §  542  ;  Mitchell    v.    Roberts  (C.  »  Lawton  v.  Newland,  2  Stark.  72. 
C.  E.  D.  Wis.  1883),  17  Fed.  Rep.  — .  *  Scott  v.  Parker,  supra. 

2  Scott  V.  Parker,  1  Q.  B.  809  ;  Chap-  ^  Foster  v.  Purdy,  5  Mete.  (Mass.) 
man   v.   Clough,  6    Vt.   123;  Morse  v.  442. 

Woods,  5  N.  II.  297,  300;  Taylor  v.  «  Sonoma  Valley  Bank  v.  Hill,  69 
Cheever,  G  Gray  (Mass.),  146.  Cal.  107. 

451 


§§  594-596.]      REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

594.  The  pledgor  cannot  set  up  in  defence  to  a  suit  upon 
the  debt  a  claim  for  the  value  of  the  pledge  by  way  of  set-off 
or  recoupment.  There  is  no  liability  on  the  part  of  tlie  pledgee 
to  return  the  pledge  till  the  debt  is  paid,  and  therefore  at  the 
time  of  making  this  defence  there  is  nothing  upon  which  the 
defendant  could  found  a  cross  action  ;  and  a  claim  by  way  of  set- 
off or  recoupment  can  only  be  sustained  for  what  the  defendant 
could  maintain  such  an  action  for.  Recoupment  can  be  availed  of 
only  when  the  liability  of  both  parties  arises  out  of  the  same  trans- 
action or  from  mutual  and  dependent  covenants  or  agreements. 
The  giving  of  a  pledge  may,  perhaps,  be  a  part  of  the  transac- 
tion of  creating  the  debt  secured.  The  debt  is  a  contract  inde- 
pendent of  the  giving  of  the  pledge,  and  com])lete  in  itself.^ 

The  implied  agreement  on  the  part  of  the  pledgee  for  the  safe 
keeping  and  return  of  the  pledge,  is  independent  of  the  debt,  and 
not  a  condition  upon  which  the  debt  becomes  payable. 

In  the  absence  of  an  agreement  to  resort  first  to  the  pledge,  it 
is  no  defence  to  an  action  on  the  debt  secured  that  tlie  property 
pledged  has  greatly  depreciated  in  value  between  the  time  of  de- 
fault and  the  commencement  of  the  suit  on  the  debt.^ 

595.  But  under  codes  of  procedure  in  several  states  the 
pledgor  may  set  up  as  a  defence  to  an  action  for  the  debt  a  con- 
version of  the  pledge ;  and  he  may  take  this  defence  by  way  of 
counter-claim.^ 

In  a  suit  by  a  pledgee  upon  the  debt  he  must  account  for  the 
value  of  pledged  goods  which  with  the  consent  of  the  debtor  he 
has  committed  to  a  factor  for  sale  and  the  factoi-  has  sold  but  has 
failed  properly  to  account  for.  The  amount  rightfully  due  from 
the  factor  is  to  be  considered  in  the  nature  of  a  fund  provided  by 
the  debtor  to  be  applied  to  the  satisfaction  of  his  indebtedness; 
but  the  creditor  having  dealt  directly  with  the  factor,  it  is  his 
right  and  duty  to  require  of  the  factor  a  full  and  just  accounting.* 

596.  In  an  action  upon  a  debt  secured  by  collateral  in 
such    states  it  is  incumbent    upon  the  plaintiff  to  produce 

1  Winthrop  Bank  v.  Jackson,  67  (N.  Y.),  40U;  Scott  c.  Crews,  2  S.  C. 
Me.  570.  522;    Bank    of    Brili.-h    Columbia    v. 

2  Bozet  V.  McClellan,  48  111.  345.  Marshall  (C.  C.  Dist.  Oregon),  11  Fed. 
8  Stearns  v.  Marsh,  4  Denio  (N.  Y.),     Rep.  1 9. 

227;    Cass   v.  Higenbotam,    27    Hun         *  Bigelow  r.  Walker,  24  Vt.  149. 
452 


SUIT    UPON   THE   DEBT.  [§  596. 

or  restore  the  collateral,  or  to  account  satisfactorily  for  its  non- 
production  ;  ^  and  he  cannot  absolve  himself  from  this  duty  by 
showing  that  the  colhiteral  security  has  become  worthless  since 
it  was  deposited  in  his  hands,  because  it  does  not  follow  that  he 
may  not  have  disposed  of  it  for  value  before  it  became  worth- 
less.2  I-i'or  this  reason  it  is,  in  such  case,  incumbent  upon  him 
to  produce  the  identical  securities  deposited  with  him,  and  not 
merely  other  securities  of  the  same  kind,  unless  he  can  show  that 
he  has  always  had  in  hand  other  securities  of  the  same  kind  of  a 
sufficient  amount  to  enable  him  to  return  to  the  pledgor  at  any 
time,  upon  demand,  the  securities  deposited  as  collateral ;  for 
otherwise  the  pledgee  may  have  sold  the  securities  at  their  face- 
value  before  their  depreciation,  and  afterwards  have  replaced  them 
with  others  purchased  at  a  small  price  after  their  depreciation. 

If  a  pledgee  is  unable  to  return  the  identical  bonds  received  in 
pledge,  the  burden  of  proof  is  upon  him  to  show  that  he  has  at 
all  times  since  the  pledge  was  taken  had  other  bonds  of  the  same 
kind  on  hand  not  required  to  meet  other  obligations.  The  fact 
that  he  has  not  tlie  identical  bonds  in  his  possession  when  their 
return  is  demanded,  is  evidence  which  a  jury  may  consider  as 
tending  to  prove  a  conversion  by  him.  This  fact  is  enough  to 
throw  upon  him  the  burden  of  showing  what  he  did  with  the 
pledged  securities,  or  of  proving  that  he  all  the  while  had  other 
securities  of  the  same  kind  which  he  could  return  in  place  of 
those  received,^ 

As  security  for  a  loan  of  money,  the  borrower  deposited  cer- 
tain coupon  bonds.  The  lender  afterwards  becoming  insolvent 
made  an  assignment  for  the  benefit  of  creditors,  leaving  his  affairs 
in  great  confusion.  His  assignees  failed  to  find  among  his  assets 
the  identical  bonds  deposited  by  the  borrower,  but  discovered 
many  other  bonds  of  the  same  kind.  The  bonds,  although  at 
the  time  of  their  deposit  of  considerable  value,  had  in  the  mean- 
time become  worthless.  The  borrower  tendered  to  the  assignees 
the  full  amount  of  his  debt,  demanding  from  them  the  bonds 
deposited   by   him.     These   they  declared  themselves  unable  to 

1  Stuart  V.  Bigler,  98  Pa.  St.  80;     Bank  v.  Fant,  50  N.  Y.  474;  Smith  v. 
Spaldin;r  v.  Bank  of  Susquelianna  Co.     Roekwi;!!,  2  Hill  (N.Y.),  482. 
9  Pa.  St.  28;   Bank   of  U.  S.  ?;.  Pea-         '  Stuart  u.  Bigler,  ,s-u/jm. 
body,    20    Pa.  St.  454;    Ocean    Nat.         »  Stuart  w.  Bigler,  98  Pa.  St.  80,84. 

Per  Paxson,  J. 

453 


§§  597,  598.]   REMEDIES  OF  THE  PLEDGEE  AFTER  DEFAULT. 

restore,  but  tendered  instead  a  like  number  of  the  similar  bonds 
found  by  them  among  the  lender's  assets.  This  tender  the  bor- 
rower refused  to  accept.  In  an  action  by  the  assignees  against 
him  to  recover  the  amount  of  money  loaned  to  him,  it  was  held 
that  there  was  evidence  to  go  to  the  jury  of  a  conversion  of  the 
bonds  by  the  pledgee,  and  that  if  the  jury  found  that  there  had 
been  such  conversion  the  plaintiffs  were  not  entitled  to  recover 
without  accounting  to  the  pledgor  for  the  proceeds  of  the  bonds. 
It  Avas  held,  further,  that  the  burden  was  upon  the  plaintiffs  to 
rebut  the  primd  facie  presumption  that  such  a  conversion  had 
taken  place,  by  either  producing  the  bonds  or  satisfactorily  ac- 
counting for  their  non-production,  and  that  in  case  they  failed  to 
do  this  they  were  not  entitled  to  recover.  It  was  further  held 
that  the  tender  by  the  plaintiffs  of  the  other  bonds  found  among 
the  lender's  assets,  of  the  same  kind  as  those  deposited  by  the 
borrower,  was  not  good,  for  the  reason  that  there  was  no  proof 
that  those  bonds  had  been  continuously  in  the  lender's  possession 
from  the  time  the  loan  was  made,  and  therefore  might  have  been 
purchased  by  him  after  they  became  utterly  worthless. 

It  seems  that  if  the  bonds  had  been  in  the  pledgee's  possession 
from  the  time  of  the  loan  by  him,  the  tender  of  them  by  his 
assignees  would  have  been  good,  and  the  pledgor  would  have  been 
bound  to  accept  them.^ 

597.  The  pledgee  may  also  maintain  a  suit  for  a  de- 
ficiency existing  after  applying  the  proceeds  of  the  pledge  to 
the  payment  of  the  debt.^ 

698.  A  pledgee  is  not  obliged  to  present  his  claim  to  the 
administrator  of  the  pledgor,  unless  he  seeks  recourse  against 
other  property  of  the  estate  than  that  pledged.^ 

In  Texas  the  holder  of  a  mortgage  or  lien  upon  the  property 
of  a  deceased  debtor  must  prove  his  claim  in  the  Probate  Court, 
from  which  he  may  afterwards  obtain  an  order  for  the  sale  of 
the  property.  But  the  holder  of  negotiable  paper  as  collateral 
security  is  not  a  mere  mortgagee  or  lien-holder,  who,  in  case  of 
the  death  of  his  debtor,  must  prove  his  claim  against  the  estate, 
and  ask  the  aid  of  the  Probate  Court  to  enforce  it.     He  has  in 

1  Stuart  V.  Bisler,  98  Pa.  St.  80.  »  Kibbe,  in  re,  57  Cal.  407. 

a  Mauge  V.  Heringhi,  26  Cal.  577. 

464 


ATTACHMENT   OF  THE  PLEDGED  PROPERTY.  [§  599. 

his  own  hands  the  means  of  paying  himself,  and  may,  at  any 
time  after  the  principal  debt  is  due,  collect  the  collaterals  when 
they  become  due,  and  appropriate  the  proceeds  to  the  payment 
of  the  debt.  If,  however,  the  securities  prove  to  be  uncollect- 
able,  and  the  creditor  be  driven  to  treat  them  merely  as  personal 
property  pledged  to  secure  a  debt,  and  to  invoke  the  aid  of  the 
courts  to  realize  upon  the  security,  then  the  matter  may  come 
within  the  reach  of  the  Probate  laws,  and  the  creditor  may  be 
compelled  to  prove  his  claim,  and  have  the  securities  administered 
by  the  Probate  Court.  But  there  is  no  provision  of  the  Probate 
laws  which  reaches  a  creditor  who  has  in  his  own  hands  that 
which  may  be  treated  by  him  as  so  much  money,  and  appro- 
priated as  such  to  the  payment  of  a  debt  due  him.i 

In  Arkansas  it  is  provided  by  statute  that  upon  the  death  of  a 
pledgor  the  court,  on  the  application  of  any  person  interested, 
may  order  the  executor  or  administrator  to  redeem  the  property 
out  of  the  assets  in  his  hands,  if  it  would  be  beneficial  to  the 
estate,  and  not  injurious  to  the  creditors;  but  if  such  redemp- 
tion would  be  injurious  to  the  estate  or  the  creditors,  or  there 
should  not  be  assets  to  redeem  the  property  after  the  payment  of 
debts,  the  court  may  order  the  interest  of  the  deceased  in  such 
property  to  be  sold  at  public  auction.^ 

II.  Attachment  of  the  Pledged  Property. 

599.  A  pledgee  generally  waives  his  lien  by  attaching  or 
levying  upon  the  property  held  in  pledge  in  a  suit  upon  the 
very  debt  which  the  pledge  was  given  to  secure.^  But  he  may 
do  this  if  he  choose,  and  have  the  property  levied  upon  and  sold 
as  property  of  the  judgment  debtor.  In  such  case  the  purchaser, 
whether  he  be  a  third  person  or  the  judgment  creditor,  there- 
after holds  title  by  virtue  of  the  sale,  and  not  by  virtue  of  the 
pledge.* 

1  Hurler  v.  Dahoney,  48  Tex.  234.  Legg  v.  Willard,  17  Pick.  (TVTass.)  140; 
The  ri<^ht  of  a  holder  of  a  trust  deed  Whitaker  v.  Sumner,  20  lb.  399;  Buck 
or  mortgage  to  sell  under  a  power  is  u.  Ingersoll,  11  Met.  (Mass.)  226;  con- 
suspended  in  case  of  the  death  of  the  tra,  Arendale  v.  Morgan,  5  Sneed 
mortgage  debtor,  by  force  of  the  Pro-  (Tenn.),  703. 

bate   laws.     Jones  on   Mortgages,    §  *  Sickles  v.   Richardson,    23    Hun 

^''92.  (N.  Y.),    559,  and    see    Arendalo   v. 

»  Dig.  1874,  §  183.                          •  Morgan,  supra. 

'  Jacobs   V.  Latour,  5    Bing.   130  ; 

455 


§  600.]  REMEDIES    OF   THE   PLEDGEE   AFTER   DEFAULT. 

But  a  pledgee  may  attach  property  of  tlie  pledgor's  other  than 
that  held  in  pledge  without  waiving  or  affecting  his  lien.^ 

It  has  been  held,  however,  that  property  exempt  from  execution, 
pledged  to  secure  a  debt,  raa}^  upon  the  recovery  of  a  judgment 
upon  the  debt,  be  sold  on  execution .^  The  grounds  of  the  deci- 
sion are,  1st,  that  pledgor  may  waive  such  exemption,  and  effec- 
tually pledge  such  property  ;  2d,  that  the  recovery  of  judgment 
upon  the  debt  does  not  destroy  or  affect  the  lien  of  the  pledge  ; 
and  3d,  that  it  being  conceded  that  the  creditor  might  have 
given  notice  and  sold  the  property  himself,  without  judgment 
or  execution,  there  could  be  no  valid  objection  to  a  sale  by  an 
oflBcer  in  the  manner  and  form  prescribed  for  sales  upon  execu- 
tion, for  no  greater  care  is  required  in  the  sale  of  such  property 
than  is  required  in  the  sale  of  any  personal  property  on  execu- 
tion.^ But  in  such  case,  is  the  sale  made  solely  by  virtue  of  the 
lien  of  the  pledge,  or  merely  by  virtue  of  the  seizure  on  execu- 
tion ?  It  would  seem  that  it  must  be  by  virtue  of  the  lien  of  the 
pledge,  for  the  legal  exemption  would  prevent  a  sale  by  virtue 
of  the  execution.  A  sale  in  this  form,  by  virtue  of  the  pledge, 
is  so  different  from  the  sale  of  a  pledge  sanctioned  by  the  common 
law,  that  its  validity  might  well  be  doubted  in  a  state  where  it 
has  not  been  established  by  a  decision  of  the  highest  court. 

If  a  promissory  note  be  placed  in  the  hands  of  a  slieriff  as 
collateral  security  for  the  payment  of  an  execution  which  he 
holds  against  the  owner  of  the  note,  an  attempt  by  the  sheriff  to 
hold  the  note  under  a  void  levy  of  the  execution  upon  it  will  not 
operate  as  a  waiver  of  the  lien.^ 

600.  If  one  holding  goods  in  pledge  in  the  hands  of  an 
agent,  attach  them  for  the  same  debt  secured  by  the  pledge, 
he  thereby  relinquishes  the  lien  of  his  pledge.* 

And  so,  if  the  pledgee  transfer  the  debt  secured  by  the  pledge 
without  a  transfer  of  the  lien,  and  points  out  to  his  assignee  the 
pledged  property  to  be  attached  by  him  and  other  creditors,  and 
no  notice  is  given  to  the  officer  of  the  existence  of  any  such  lien, 
the  pledgee  having  thus  put  it  beyond  his  power,  or  that  of  his 

1  Whitwell   V.    Brigham,   19   Pick.         s  pi^ijer  ^,  j\£eek,  38  111.  92, 
(Mass.)  117.  *  Swett  v.  Brown,  5  Pick.  (Mass.) 

2  Jones  V.  Scott,  10  Kans.  33.  178t 

456 


SALE    OF    THE   PLEDGE   AT    COMMON    LAW.       [§§  601-603. 

assignee,  to  restore  the  pledged  property  upon  payment  of  the 
debt,  is  regarded  as  having  waived  his  lien.^ 

601.  But  an  attachment  of  the  same  goods  by  the  pledgee 
on  another  demand,  with  notice  to  the  officer  that  lie  did  not 
waive  his  lien,  and  also  with  notice  to  him  to  hold  possession  for 
the  pledgee,  and  to  maintain  his  lien,  would  not  amount  to  a 
waiver.2 

III.  Sale  of  the  Pledge  at  Common  Laiu. 

602.  In  General.  —  A  pledgee  of  goods  does  not  acquire  an 
absolute  title  thereto  simply  by  the  failure  of  the  pledgor  to  pay 
the  debt  or  redeem  the  property  at  the  time  specified.  His  in- 
terest is  a  special  property  to  retain  the  goods  for  his  security* 
There  is  no  forfeiture  until  the  pledgor's  rights  are  foreclosed." 
In  this  respect  a  pledge  differs  from  a  chattel  mortgfTge,  under 
which  the  title  of  the  mortgagee  becomes  absolute  upon  default.* 

A  sale  of  the  pledge,  according  to  the  rules  of  tlie  common 
law,  is  the  usual  method  of  foreclosing  this  lien,  where  the  par- 
ties have  not  expressly  agreed  that  the  sale  shall  be  made  in  a 
definite  manner,  under  provisions  which  are  usually  termed  a 
power  of  sale  ;  and  even  where  there  is  such  a  power  of  sale,  the 
sale  may  be  made  according  to  the  rules  of  the  common  law, 
unless  the  conditions  prescribed  in  the  power  of  sale  are  impera- 
tive. But  both  the  common  law  form  of  procedure  and  that 
which  the  parties  have  agreed  upon  must  yield  to  statutory  regu- 
lations, when  these  are  imperative  and  not  permissive  merely. 

603.  It  is  a  well-settled  rule  of  the  common  law  that  a 
pledgee,  upon  default,  may  sell  at  public  auction  the  chattel 
pledged,  without  judicial  process  and  decree  of  foreclosure,  upon 
giving  the  debtor   reasonable  notice  to  redeem  ;  ^  although  the 

MVhitaker    v.    Sumner,   20    Pick.  <  Jones  on  Chattel  Mort{ino;ps,  §  699; 

(Mass.)  399.  Brown  v.  Bement,  8  Johns.  (X.  Y.)  96. 

*  Whitakcr      v.      Sumner,    supra;  ^  Tucker  v.  Wilson,  1  P.  Wms.  261; 

Townsend  v.  Newell,  14  Pick.  (Mass.)  Lock  wood  v.  Ewer,  2  Atk.  30.J;  S.  C. 

332.  9  Mod.  275,  278;  Pothoniir  r.  Dawson, 

8  Brownell    v.    Hawkins,    4     Barb.  Holt,  385  ;  Kemp  c.  \\'estbro()k,  1  Ves. 

(N.  Y.)  491;   Mitchell  v.  Roberts  (C.  278;  Pigot  v.  Cubley,    15   C    B.   (N. 

C.  E.  D.  Wis.  1883),  17  Fed.  Rep.—,  S.)  701  ;    Martin  r.  Reid,  11    II).  730; 

per  Caldwell,  J.  Vaupell  v.  Woodward,   2  Saiidf.  (N. 

457 


§  604.]    REMEDIES  OF  THE  PLEDGEE  AFTER  DEFAULT. 

old  rule,  existing  in  the  time  of  Glanville,  required  a  judicial 
sentence  to  warrant  a  sale,  unless  there  was  a  special  agreement 
to  the  contrary .1  This  right  to  sell  upon  default  is  implied  in 
the  contract  of  pledge,  and  does  not  depend  upon  any  express 
stipulation  .2 

604.  If  the  pledgor  has  only  a  limited  interest  in  the 
thing  pledged,  the  pledgee  can  sell  only  the  interest  which  was 
transferred  in  pledge.  The  pledgor's  interest  may  be  such  that 
the  pledgee  cannot  make  any  sale  of  the  thing  pledged,  but  can 
only  continue  to  hold  it.  "  He  may  have  only  an  interest  for 
life,  or  for  a  term  of  years,  or  he  may  have  simply  a  lien,  or  a 
right  by  a  former  pledge ;  still  he  may  pledge  the  property  to  the 
extent  of  his  interest.  But  the  pledgee  in  all  such  cases  has  no 
right  to  sell  the  property  on  the  non-fulfillment  of  the  contract, 
although  he  may  pursue  the  proper  course  for  the  purpose,  for 
the  pledgor  has  no  such  right  to  confer.  The  pledgee  must  con- 
tent himself,  in  such  cases,  with  holding  the  possession  of  the 
property  till  his  debt  is  paid,  or  the  interest  of  his  pledgor  in  the 
property  has  expired."  ^  Accordingly  where  a  husband  held, 
as  trustee,  certain  chattels  belonging  to  his  wife,  and  she  pledged 
them,  with  his  consent,  to  secure  a  liability  assumed  by  him,  and 
a  statute  then  provided  that  no  transfer  by  a  husband  of  the 
personal  property  of  his  wife  should  be  valid  unless  she  should 
join  with  him  in  a  written  conveyance  of  the  same,  it  was  ques- 
tioned whether  the  pledgee  could  sell  the  property,  because  the 
sale,  coupled  with  the  pledge,  might  be  regarded  as  amounting 
to  a  transfer  of  the  property,  and  therefore  invalid  under  the 
statute ;  but  it  was  not  doubted  that  the  pledgee  would  have  a 
right  to  hold  the  property  without  a  sale.* 

Y.)    Ch.    143;  Hart  v.  Ten    Eyck,   2  Lansing,  2  Caines'  Cas.  200;    Stearns 

Johns.  (N.  Y.)  Ch.  62,  100;  Garlick  v.  v.  Marsh,   4  Denio  (N.  Y.),   227,  per 

James,  12  Johns.  (N.Y.)   146;  Cush-  Jewett,  J. 

man  t>.  Hayes,  46  111,  145;  Luckett  v.  ^  Lockwood  v.  Ewer,  9  Mod.  275, 

Townsend,3  Tex.  119;  Brightman  r.  278;  Jerome  v.  McCarter,   94   U.    S. 

Keeves,  21  Tex.  70;    Mauge  v.  Her-  734. 

inghi,  26  Cal.577;  Wilson  f.  Brannan,  A  similar  right  to  sell  upon  default 

27  Cal.  258;  Union  Trust  Co.  v.  Rig-  exists  in  case  of  a  chattel   mortgage. 

don,  93  111.  458;  Robinson  v.  Hurley,  Jones  on  Chattel  Mortgages,  §  707. 

11  Iowa,  410;  De  Lisle  v.  Priestman,  ^  Robertson    v.   Wilcox,  36   Conn. 

1  Browne  (Pa.),  176.  426,  430,  per  Park,  J. 

1  1  Reeves,  161-163  ;  Cortelyou  v.  *  Robertson  v.  Wilcox,  supra. 
468 


SALE   OF   THE  PLEDGE   AT   COMMON  LAW.      [§§  605-607. 

605.  The  pledgee's  assignee  has  the  same  right  to  sell  the 
pledge  upon  reasonable  notice  after  default  that  the  pledgee 
himself  had.  The  power  to  sell  property  pledged  does  not  arise 
from  any  peculiar  trust  reposed  in  the  original  creditor,  but  is  an 
incident  to  the  pledge  and  a  part  of  the  security  of  the  debt.^ 

606.  A  pledgee  is  not  obliged  to  sell  the  pledge  even  when 
requested  so  to  do  by  the  pledgor,  for  his  only  right  is  to  re- 
deem. Therefore  in  a  case  where  the  pledgor  demanded  a  sale  of 
the  greater  portion  of  the  property  pledged  upon  an  offer  pro- 
cured by  him,  and  the  pledgee  refused  to  make  the  sale,  and  it 
also  appeared  that  if  the  sale  had  been  made  and  the  money  col- 
lected thereon,  the  proceeds  of  the  sale  would  have  paid  the  debt 
secured  excepting  a  small  sum,  and  the  remainder  of  the  property 
pledged  would  have  sold  for  a  greater  sum  than  the  balance  re- 
maining unpaid,  but  all  the  property  was  afterwards  sold  by  the 
pledgee  for  a  sum  much  less  than  the  debt,  leaving  a  deficiency 
to  be  paid  by  the  debtor,  it  was  held  that  the  pledgee  was  not 
liable  for  the  loss  occasioned  by  his  refusal  to  sell  as  requested, 
this  refusal  being  made  in  the  exercise  of  an  honest  judgment  on 
his  part.2 

607.  There  are  two  kinds  of  notice  which  a  pledgee  may 
be  bound  to  give  to  the  pledgor.  Notice  of  his  intention  to  sell, 
and  of  the  time  and  place  of  sale,  is  always  necessary  for  the  making 
of  a  binding  sale  of  the  property  pledged,  unless  by  agreement 
of  the  parties  such  notice  has  been  expressly  or  impliedly  waived- 
Again,  if  the  debt  secured  is  not  one  which  becomes  due  at  a 
fixed  time,  there  maybe  no  default  upon  the  occurrence  of  which 
a  sale  of  the  pledge  can  be  made  until  the  pledgee  makes  demand 
of  payment  or  gives  notice  of  the  occurrence  of  the  event  which 
constitutes  a  default;  or  it  may  be  that  the  event  upon  wliich  a 
default  occurs  is  one  peculiarly  within  the  knowledge  of  the 
pledgee ;  or  it  may  be  that  such  event  is  one  which  it  is  his 
option  to  declare.  In  such  cases  of  course  there  is  no  default 
until  the  pledgee  makes  demand  of  payment,  or  gives  notice  of 
the  default. 

^  Loiul  V.  Burke,  22  Gratt.  (Va.)  215.  So  under  a  cliattel  mort^jage  ; 
254,  263;  per  IMonciire,  C.  J.  Jones  on  Chattel  Mortgages,  §  702. 

2  Field  V.  Leavitt,  5  J.  &  S.  (N.  Y.) 

459 


§§  608,  609.]      REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

608.  A  demand  of  payment  may  be  necessary  in  some  cases 
to  create  a  default.  Thus  when  the  default  upon  which  a 
pledgee  is  authorized  to  sell  arises  upon  a  decline  in  price  of  the 
propert}'  pledged,  or  in  other  words  when  the  debtor  has  agreed 
to  maintain  a  certain  margin  of  value  in  the  security  above  the 
advances  made  upon  it,  it  is  the  duty  of  the  pledgee  to  give 
notice  of  an}'  deficiency  of  margin  that  may  have  occurred,  and 
to  demand  the  making  good  of  the  margin,  before  proceeding  to 
sell  the  pledged  property.  Thus  where  a  consignee  of  cotton 
made  advances  upon  it  under  an  agreement  that  the  consignor 
would  maintain  a  certain  margin,  and  that  the  consignee  might 
sell  the  cotton  at  public  or  private  sale,  in  case  there  should  be  a 
decline  in  the  market  price  of  cotton  so  as  to  impair  the  margin, 
and  the  consignor  should  fail  on  demand  to  make  it  good,  it 
was  held  that  the  consisfuee  was  bound  to  give  notice  of  a  decline 
and  make  an  actual  demand  for  the  margin  before  selling.^  It  is 
true  that  in  this  case  it  was  expressly  agreed  that  the  default 
upon  which  the  pledgee  was  authorized  to  sell  the  cotton  should 
arise  upon  the  failure  of  the  pledgor  to  make  good  the  margin 
upon  demand.  But  this  agreement  of  the  parties  merely  ex- 
pressed the  rule  of  law  which  would  have  determined  their  rights 
had  the  agreement  been  silent  in  regard  to  a  demand. 

If  the  debt  secured  is  not  payable  at  a  fixed  time,  a  demand  of 
payment,  or  that  the  pledge  securing  the  debt  be  redeemed, 
should  be  made  before  the  creditor  can  properly  dispose  of  the 
pledged  property.  If  in  such  case  the  debtor  be  absent  or  can- 
not be  found,  judicial  proceedings  should  be  had  to  bar  his  right 
of  redemption.^  If  the  debt  is  expressly  payable  on  demand  the 
pledgee  cannot  sell  without  first  making  demand.^ 

609.  The  fact  that  the  debt  secured  is  payable  at  a  future 
day  certain,  does  not  dispense  with  a  want  of  notice  of  the 
time  and  place  of  sale.  The  non-payment  of  the  debt  at  ma- 
turity does  not  work  a  forfeiture  of  the  pledge :  it  merely  author- 
izes the  pledgee  to  sell  the  pledge  upon  reasonable  notice  and  to 
reimburse  himself  for  the  debt  and  expenses.  As  regards  notice 
of  sale  there  is  no  distinction  between  a  pledge  for  a  debt  due 

1  Milli'cen  V.  Dehon,  27  N.  Y.  364.  s  Wilson  v.  Little,  1  Sandf.  (N.  Y.) 

2  Garlic-k  v.  James,   12  Johns.  (N.     351. 
Y.)  146. 

460 


SALE   OF   THE   PLEDGE   AT   COMMON   LAW.  [§  GIO. 

presently  and  one  for  a  debt  due  upon  time.  "  In  either  ease 
the  pledgor  is  eqnall}'  interested  to  see  to  it  that  the  pledge  is  sold 
for  a  fair  price.  The  time  when  the  sale  may  take  place  is  as  un- 
certain in  the  one  case  as  in  the  other ;  both  depend  upon  the  will 
of  the  pledgee,  after,  the  lapse  of  the  term  of  credit  in  the  one  case, 
and  after  a  reasonable  time  in  the  other  ;  unless,  indeed,  the 
pledgor  resorts  to  a  court  of  equity  to  quicken  a  sale.  Personal 
notice  to  the  pledgor  to  redeem,  and  of  the  intended  sale,  must 
be  given  as  well  in  the  one  case  as  in  the  other,  in  order  to  au- 
thorize a  sale  by  the  act  of  the  party."  ^  Thus  a  pledge  of  goods 
was  made  to  secure  a  promissory  note  payable  in  four  months, 
A  few  days  afterwards  the  pledgor  authorized  the  pledgee  to  sell 
a  designated  portion  of  the  goods  at  public  sale  then  about  to 
occur  at  a  certain  place,  and  to  apply  the  proceeds  on  the  note. 
This  privilege  the  pledgee  did  not  avail  himself  of ;  but  after  the 
maturity  of  the  note,  without  notice  to  the  pledgor,  he  caused  the 
goods  to  be  sold  at  public  auction  at  the  same  place  at  which  the 
sale  of  a  portion  had  been  previously  authorized  ;  and  thereupon 
brought  suit  against  the  pledgor  for  the  balance  due  on  the  note. 
The  sale  was  held  to  be  tortious,  and  the  pledgee  a  wrong-doer.^ 

610.  A  sale  of  the  pledge  can  only  be  made  after  reason- 
able notice  to  the  pledgor  of  the  tim$  and  place  of  sale,  unless 
such  notice  has  been  waived  by  agreement.^ 

1  Stearns  f.  Marsh,  4  Denio(N.Y.),  Minn.    27;    Goldsmith    v.    Methodist 

227,  230;  {rt  Jewett,  J.  Church  Trustees,  6  Rep.  435. 

'■^  Stearns  v.  ]\Iar^ll,  supra.  New  York:  Garlick  v.  James,   12 

3  England:  Tucker  y.  Wilson,  1  P.  Johns.    14G  ;    Hart   v.    Ten    Eyck,    2 

Wms.    261;    Lockwood    v.   Ewer,    2  Johns.  Ch.  62,  100 ;   Stearns  r.  Mar^h, 

Atk.  303;  S.  C.  9  Mod.  275,  278.  supra;    Wheeler  v.  Newbould,  16  N. 

California:  Deivey   v.  Bowman,   8  Y.  392;  Bryan  v.  Baldwin,  52  N.  Y. 

Cal.  145;  Gay  r.  Moss,  34  Cal.  125.  232;    Milliken    v.    Dehon,    10   Bosw. 

Illinois:  Cu,-hman  i\  Hayes,  46  111.  325;    Jaroslauski    v.     Saunderson,    1 

145  ;  Kozet  v.  IMcClellan,  48  111.  345;  Daly,  232;  Lewis  v.  Graham,  4  Ahb. 

Belden  v.  IVrkins,  78  111.  449.  Pr.    106  ;    Brown    v.  Ward,    9   IIow. 

Indiana  :     Indiana    &    111.     Cent.  Pr.  497;  S.  C.  3  Duer,    660  ;  Nelson 

Ily.    Co.   V.    M.Kt-rnan,    24    Ind.  62  ;  r.  P^dwards,  40  Barb.  279 ;  Ogden  v. 

Evans  v.  Darliri'^ton,   5  Blackf.   320;  Lathrop,  65  N.  Y.  158. 

Rosenzweiii  v.  Frazer,  82  Ind.  342.  Pennsylvania:  De  Lisle  v.  Priest- 
Massachusetts:  \Vashburn  v.  Pond,  man,  1    Browne,  176;  Davis  v.  Funk, 

2  AUfu,  474;  Paiker  v.  Brancker,  22  39  Pa,  St.  243;  Conyngham's  Aj)peal, 

Pick.  40.  57  Pa.  St.  474. 

Minnesota  :   White  v.   Phelps,   14  Other  States:  Stevens  v.  Ilurlbut 

4til 


§  611.]  REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

The  reasons  assigned  for  the  rule  are  that  the  pledgor  should 
have  an  opportunity  to  attend  the  sale,  and  see  that  it  is  fairly- 
conducted  ;  that  he  may  exert  himself  in  procuring  buyers,  and 
thus  enhance  the  price  ;  and  that  he  has  the  right  to  redeem  the 
pledge  at  any  moment  before  the  sale  is  actually  made,  and 
should  be  afforded  an  opportunity  to  exercise  this  right.^ 

The  right  of  redemption  incident  to  every  pledge  would  be 
valueless,  if  the  creditor  could  in  the  absence  of  any  agreement, 
dispensing  with  notice  of  sale,  sell  the  property  pledged  without 
demand  of  payment  and  without  notice  of  the  time  and  place  of 
sale.2 

611.  A  waiver  of  the  requirement  of  notice  of  the  pledgee's 
intention  to  sell,  and  of  the  time  and  place  of  sale,  may  be  made 
by  agreement  of  parties.^  A  waiver  of  the  common  law  rule  of 
notice  is  generally  made  when  the  parties  agree  upon  a  special 
power  of  sale  ;  for  under  such  a  power  it  is  usual  either  to  waive 
notice  of  sale  altogether,  or  else  to  provide  for  a  special  notice. 
Such  notice  is  waived  by  giving  the  pledgee  the  option  to  sell  at 
private  sale.  Under  authority  given  a  pledgee  to  sell  at  public 
or  private  sale,  at  his  option,  he  may  sell  without  notice  in  the 
usual  manner  of  selling  such  property  in  the  market.*  Thus,  a 
consignee  of  cotton  made  advances  upon  it  to  be  paid  at  a  day 
certain,  under  an  agreement  that  should  there  be  a  decline  in  the 
market  price  of  cotton,  the  consignor  should,  on  demand,  deposit 
cash  sufficient  to  cover  such  decline  ;  and  in  case  he  failed  to  do 
so,  or  to  repay  the  advances  at  the  day  fixed  upon,  the  consignee 
was  authorized  to  sell  the  cotton  at  public  or  private  sale,  or 
otherwise  at  his  option,  for  the  most  it  would  bring.  The  con- 
signor having  failed  to  make  good  a  decline,  the  consignee  sold 
the  cotton  by  sample  in  the  usual  mode  of  selling  cotton  in  the 
market,  without  giving  notice  of  his  intention  or  of  the  time  and 
place  of  sale.  It  was  held  that  he  had  a  right  so  to  do.^  But 
the  contract  in  this  case  was  a  peculiar  one.     It  included  more 

Bank,  31  Conn.  146  ;  Morgan  v.  Dod,  «  Loomis  v.  Stave,  72  111.  623. 

3   Colo.  551;    Chouteau  v.  Allen,  70  *  Robinson    v.    Hurley,    11    Iowa, 

Mo.  290;  Loud  v.  Burke,   22   Gratt.  410. 

(Va.)  254.  5  Milliken  v.Dehon,  supra;  revers- 

1  Milliken  v.  Dehon,  27  N.  Y.  364,  ing  i".  C.  10  Bosw.  325. 
373,  per  Marvin,  J. 

2  Wilson  V.  Little,  2  N.  Y.  443. 

462 


SALE  OF   THE   PLEDGE   AT   COMMON  LAW.  [§  612. 

than  an  ordinary  pledge,  and  was  construed  according  to  its  lan- 
guage and  attendant  circumstances.^  Of  course  a  private  sale 
without  notice  may  be  made  by  the  direction  or  with  the  consent 
of  the  pledgor,  who  cannot  afterwards  object  that  the  sale  was 
not  made  in  accordance  with  the  requirements  of  a  statute  relat- 
ing to  sales  of  pledged  property .^ 

An  agreement  that  the  pledgor  shall  have  the  right  to  deter- 
mine the  time  when  the  sale  shall  be  made,  does  not  affect  the 
legal  character  of  the  pledge.  If  the  pledgee  sells  without  the 
consent  of  the  pledgor,  and  without  notice  to  him  of  the  time 
and  place  of  sale,  he  is  liable  to  the  pledgor  for  the  market  value 
of  the  property  at  the  time  it  was  sold  ;  but  the  pledgee  is  en- 
titled to  offset  or  recoup  the  amount  of  the  debt  secured.  The 
pledgee's  assignee,  in  such  case,  is  subject  to  the  same  liability, 
and  entitled  to  the  same  right  of  set-off.^ 

612.  The  notice  must  be  given  to  the  general  owner  of 
the  pledge  or  to  his  agent.  If  notice  be  given  to  an  agent  who 
has  no  authority  to  act  in  the  matter  for  the  owner,  the  notice  is 
without  effect.* 

Notice  to  the  owner  after  the  sale,  though  an  opportunity  be 
allowed  him  to  redeem  the  pledge  within  a  limited  time,  is  of  no 
effect.  The  pledgor  might  not  be  able  to  raise  funds  to  redeem, 
while  he  might  have  been  able  to  advance  his  interests  in  obtain- 
ing a  higher  price  by  procuring  the  attendance  of  bidders,  and 
securing  greater  competition  among  purchasers  ;  and  he  is  en- 
titled to  have  the  opportunity  of  knowing  that  the  sale  was  con- 
ducted in  a  proper  manner.^ 

Notice  of  the  time  and  place  of  sale  left,  in  the  absence  of  the 
pledgor,  at  his  office,  with  a  person  in  charge,  is  sufficient.^  So 
is  a  notice,  properly  directed,  sent  through  the  post  office.'' 

1  For  a  case  where  a  contract  which  ^  Hamilton  v.  State  Bank,  22  Iowa, 

was  more  than  a  pledge  and  depended  306. 

for  its  construction  altogether  ujjon  its  ^  Belden  v,  Perkins,  78  111.  449. 

peculiar  terms,  see  Murdock  v.  Colum-  *  Washburn     v.     Pond,     2     Allen 

bus  Ins.  Co.  59  Miss.  152,  where  also  (Mass.),  474. 

it  was  held  that  the  debtor  was  not  ^  Washburn    v.   Pond,    supra,    per 

entitled  to  a  demand  of  payment,  or  Dewey,  J. 

to  notice  of  the  time  and  place  of  sale.  ''  Potter  v.  Thompson,  10  K.  I.  1 ; 

■J  Worthington  v.  Tormey,  34  Md.  182. 

463 


§§  613,  614.]      REMEDIES   OF   THE   PLEDGEE   AFTER  DEFAULT. 

A   notice   without   date   and    without   signature   left   at   the 
pledgor's  ofBce,  would  be  insufficient.^ 

613.  Formal  notice  of  the  time  and  place  of  sale  is  not 
necessary  if  the  pledgor  has  actual  notice,^  "  The  onl}'  object 
of  requiring  notice  to  be  given  in  such  a  case,  is  to  inform  the 
debtor  of  the  time  and  place  of  sale;  and  when  he  is  already 
otherwise  fully  informed  on  the  subject,  to  require  a  further  and 
more  formal  notice  to  be  given  him,  is  to  require  a  vain  thing. 
The  case  is  not  like  a  legal  proceeding,  in  which  service,  or 
waiver  of  notice,  should  appear  in  the  record.  Here  the  whole 
matter  is  m  pais,  and  the  question  is,  did  the  debtor  have  actual 
notice  of  the -time  and  place  of  sale.  The  safest  course  is  to  have 
a  formal  written  notice  served  upon  him,  for  then  the  fact  of 
notice  can  be  easily  proved.  If  this  safe  course  be  not  pursued, 
the  creditor  must,  at  his  peril,  be  prepared  to  prove  otherwise 
that  the  debtor  was  informed  of  the  time  and  place  of  sale  a 
reasonable  time  before  the  same  was  to  take  place."  ^  In  the 
case  before  the  court  it  appeared  that  a  written  notice  to  redeem 
was  given  to  the  debtor,  wherein  he  was  notified  that  unless  pay- 
ment of  the  debt  should  be  made  on  or  before  a  certain  day,  the 
creditor  would  proceed  to  sell  the  property  pledged,  and  apply 
the  proceeds  to  the  payment  of  the  debt.  The  debtor  having 
failed  to  pay  the  debt  at  the  time  named,  the  creditor  proceeded 
directly  to  advertise  a  sale  of  the  pledge  in  a  newspaper ;  and 
that  the  debtor  had  actual  knowledge  of  this  advertisement  ap- 
peared from  the  fact  that  a  week  before  the  sale  he  obtained  an 
injunction  against  the  sale,  and  his  bill  asking  for  the  injunction 
recited  a  copy  of  the  advertisement.  He  was  held  to  have  had 
actual  and  sufficient  notice  of  the  time  and  place  of  sale. 

614.  A  notice  of  an  intention  to  sell,  without  specifying 
time  or  place,  does  not  justify  a  sale.^ 

Bryan  v.  Baldwin,    7  Lans.  (N.  Y.)  constructive  notice,  and  to  have  the 

174,  where  is  cited  the  rule  declared  legal  eifect  of  actual  notice." 

by  Shaw,  C.  J.  in   Granite  Bank  v.  i  Genet  ;;.  Ilowland,  45  Barb.  (N. 

Ayers,  IG  Pick.  (xMass.)  392,  '•  that  all  Y.)  560  ;  S'.  C.  30  How.  Pr.  360. 

notices  at  one's  doinicil,  and  all  notices  ^  Loud  v.  Burke,   22   Gi-att.   (Va.) 

respecting  transactions  of  a  commer-  264,  264. 

cial  nature  at  one's   known  place  of  ^  Loud  v.  Burke,  supra,  per  Mon- 

business,  are  deemed  in  law  to  be  good  cure,  C.  J. 

464  *  Wheeler  v.  Newbould,  16  N.  Y.  392- 


STATUTORY  PROVISIONS  REGULATING   SALES.  [§§  615,  616. 

A  notice  by  a  pledgee  that  he  will  sell,  unless  an  excessive 
sum  be  paid  him  immediately,  does  not  justify  a  sale.^ 

615.  An  extension  of  the  time  of  payment  of  the  debt 
secured  suspends  the  pledgee's  right  to  sell  the  thing 
pledged  until  the  expiration  of  the  extended  time  of  payment ; 
and  the  time  of  payment  may  be  effectuall}''  extended  by  parol 
agreement.^  If  by  any  subsequent  agreement  between  the  par- 
ties, the  stipulated  time  for  payment  has  been  rendered  in- 
definite, it  is  not  competent  for  the  pledgee  to  sell  until  he  has 
made  a  demand  for  payment.^ 

IV.  Statutory  Provisions   Regulating   Sales  of  Property  Held 

in  Pledge. 

616.  In  general.  —  In  several  states  there  are  statutory  pro. 
visions  regulating  sales  of  property  pledged  for  the  enforcement 
of  debts.  These  statutes  differ  materially  ;  for  while  some  of 
them  exclude  sales  at  common  law  or  under  powers  of  sale^ 
others  are  permissive  merely,  and  simply  provide  another  mode 
of  enforcing  the  lien,  in  addition  to  those  sanctioned  by  the  com- 
mon law.  Moreover,  in  several  states  these  statutory  provisions 
apply  only  to  pawnbrokers,  other  pledgees  being  left  to  pursue 
their  common  law  remedies  without  restriction.  In  a  few  states 
there  are  special  provisions  upon  this  subject  applicable  to  pawn- 
brokers, in  addition  to  the  general  provisions  regulating  sales  by 
pledgees. 

In  several  states  the  rate  of  interest  that  may  be  charged  by 
a  pawnbroker  or  pledgee  is  regulated  by  statute.*     Under  such 

Goldsmidt  v.  First  Methodist  Church,  California  :  Not  exceeding  two  per 

25  Minn.  202.  cent,  per  month.     Stat.  1881,  c.  C5. 

1  Pigot  V.  Cubley,  15  C.  B.  (N.  S.)  Connecticut  :  Not  exceeding 
701.  twenty-five     per    cent,    per     annum. 

2  Wadsworth  v.  Thompson,  3  Gilm.  Acts  1875,  c.  82. 

(111.)  423.  Illinois  :  Not  exceeding  three  per 

3  Pigot  V.  Cubley,  supra;  Martin  v.  cent,  per  month.  11.  S.  1880,  c.  107, 
Reid,  11  C.  B.  (N.  S.)  730.  §2. 

*  Arizona  Territory  :  Not  exceed-         Maine:  Not  exceeding  twenty-five 

ing  live  per  cent,  per  month,  in  ad-  per  cent,    per   annum,   on    loans    less 

vance,  on  loans  exceeding  twenty  dol-  than  twenty-five  dollars;  and  not  ex- 

lars.     Penalty  is  a  forfeiture  of  three  ceeding  six  per  cent,  per  annum  on 

times  the  value  of  the  article  pledged,  larger  sums.     R.  S.  1871,  c.  35,  §  3. 
Compiled  Laws,  1877,  §  3610.  Missouri:  Not  exceeding  five  per 

30  4G5 


§§  617,  618.]      REMEDIES   OF   THE  PLEDGEE   AFTER  DEFAULT. 

statutes  a  borrower  who  has  contracted  to  p;iy  a  higher  rate  to  a 
pawnbroker  can  recover  possession  of  the  tiling  pawned  upon  a 
tender  of  the  debt,  with  interest  at  the  higliest  rate  which  the 
pawnbroker  is  aUowed  to  charge.^  And,  of  course,  upon  a  sale 
bv  the  pawnbroker  he  is  entitled  to  retain  interest  only  at  the 
highest  rate  allowed  by  the  statute. 

617.  Arizona  Territory.^  —  No  pawnbroker  or  pledgee  shall 
sell  or  dispose  of  any  aiticle  pledged  to  him,  and  unredeenied, 
until  it  has  remained  in  ]iis,her,  or  their  possession  three  months 
after  the  last  day  of  redemption  ;  and  all  such  sales  shall  be  at 
public  auction,  upon  notice  of  five  days,  published  in  some  news- 
paper printed  at  the  place  where  the  sale  takes  ]»lat'e  ;  and  if  no 
newspaper  is  there  printed,  then  by  posting  notices  in  two  public 
places  five  days  before  the  sale,  giving  the  plaice  where  the  article 
will  be  sold,  and  a  list  of  said  articles,  which  sales  shall,  in  all 
eases,  take  place  in  the  town  or  city  where  such  articles  are 
pledged.  After  deducting  from  the  proceeds  of  any  sale,  as 
aforesaid,  the  amount  of  the  loan,  the  interest  then  due,  as 
herein  provided,  and  ten  per  cent,  on  the  loan  additional,  for 
the  expense  of  the  sale,  such  pawnbroker  or  pledgee  shall  pay 
the  balance  to  the  person  entitled  to  redeem  such  property ;  if 
no  sale  had  been  made,  and  if  not  so  paid  on  demand,  three 
times  the  amount  thereof  shall  be  forfeited,  to  be  recovered  by 
the  owner  or  pledgor,  in  a  civil  action  to  be  brought  by  him 
therefor. 

618.  California  3  and  Dakota  Territory.*  —  When  perform- 
ance of  the  act  for  which  a  pledge  is  given  is  due,  in  whole  or  in 
part,  the  pledgee  may  collect  what  is  due  to  him  by  a  sale  of 
property  pledged,  subject  to  the  rules  and  exceptions  hereinafter 

cent,  per  month   on    sums   less   than  New  Mexico:  Not  exceeding  ten 

twenty   dollars;     and   not    exceeding  per  cent,  per  mouth.     G.  Laws,  1880, 

three   per  cent,    per  month   on   sums  p.  421. 

above.     Laws,  1879,  p.  1G2,  §  1;  R.  S.  ^  Jackson  v.  Shawl,  29  Cal   267. 

1879,  §  64G8.  "^  Compiled    Laws,   1877,  §§   3618, 

New     Jersey  :       Not     exceeding  3619. 

twenty-five   per  cent,  per  annum  on  ^  Codes    &    Stats.    1876,   §§   8000- 

sums  of   twenty-five   dollars   or  less;  8011  of  Civil  Code, 

and  ten  per  cent,  per  annum  on  sums  *  Rev.  Codes,  1877,  §§  1771-1782  of 

above.     R.  S.  1877,  p.  812,  §  2.  Civil  Code. 
466 


STATUTORY   PROVISIONS   REGULATING   SALES.  [§  618. 

prescribed.  Before  property  pledged  can  be  sold,  and  after  per- 
formance of  the  act  for  which  it  is  security  is  due,  the  pledgee 
must  demand  performance  thereof  from  the  debtor,  if  the  debtor 
can  be  found.  A  pledgee  must  give  actual  notice  to  the  pledgor 
of  the  time  and  place  at  which  the  property  pledged  will  be  sold, 
at  suah  a  reasonable  time  before  the  sale  as  will  enable  the 
pledgor  to  attend.  Notice  of  sale  may  be  waived  by  a  pledgor 
at  any  time  ;  but  is  not  waived  by  a  mere  waiver  of  demand,  of 
performance.  A  debtor  or  pledgor  waives  a  demand  of  perform- 
ance as  a  condition  precedent  to  a  sale  of  the  property  pledged, 
by  a  positive  refusal  to  perform  after  performance  is  due  ;  but 
cannot  waive  it  in  any  other  manner  except  by  contract.  The 
sale  by  a  pledgee  of  property  pledged  must  be  made  by  public 
auction,  in  the  manner  and  upon  the  notice  to  the  public  usual 
at  the  place  of  sale,  in  respect  to  auction  sales  of  similar  prop- 
erty ;  and  must  be  for  the  highest  obtainable  price.  A  pledgee 
cannot  sell  any  evidence  of  debt  pledged  to  him,  except  the 
obligations  of  governments,  states,  or  corporations  ;  but  he  may 
collect  the  same  when  due.  Whenever  property  pledged  can  be 
sold  for  a  price  sufficient  to  satisfy  the  claim  of  the  pledgee,  the 
pledgor  may  require  it  to  be  sold,  and  its  proceeds  to  be  applied 
to  such  satisfaction,  when  due.  After  a  pledgee  has  lawfully 
sold  property  pledged,  or  otherwise  collected  its  proceeds,  he 
may  deduct  therefrom  the  amount  due  under  the  principal  obli- 
gation, and  the  necessary  expenses  of  sale  and  collection,  and 
must  pay  the  surplus  to  the  pledgor,  on  demand.  When  prop- 
erty pledged  is  sold  by  order  of  the  pledgor,  before  the  claim  of 
the  pledgee  is  due,  the  latter  may  retain  out  of  the  proceeds  all 
that  can  possibly  become  due  under  his  claim  until  it  becomes 
due.  A  pledgee,  or  pledge-holder,  cannot  purchase  the  property 
pledged,  except  by  direct  dealing  with  the  pledgor.  Instead  of 
selling  property  pledged  as  hereinbefore  provided,  a  pledgee  may 
foreclose  the  right  of  redemption  by  a  judicial  sale,  under  the 
direction  of  a  competent  court ;  and  in  that  case  may  be  author- 
ized by  the  court  to  purchase  at  the  sale. 

It  is  further  provided  in  California^  that  every  pawnbroker 
who  sells  any  article  pledged  to  him,  and  unredeemed,  until  it 
has  remained  in  his  possession  six  months  after  the  last  day  fixed 

1  Co(ks  &  Stats.  1876,  §§  13,  341,  &  13,  342;  §§341,  342  of  renal  Code. 

4G7 


§§  619-621.]      REMEDIES   OF   THE  PLEDGEE   AFTER  DEFAULT. 

by  contract  for  redemption,  or  who  makes  any  sale  without  pub- 
lishing in  a  newspaper  printed  in  the  city,  town,  or  county,  at 
least  five  days  before  such  sale,  a  notice  containing  a  list  of  the 
articles  to  be  sold,  and  specifying  the  time  and  place  of  sale, 
is  guilty  of  a  misdemeanor.  Every  pawnbroker  who  wilfully 
refuses  to  disclose  to  the  pledgor,  or  his  agent,  the  name  of  the 
purchaser,  and  the  price  received  by  him  for  any  article  received 
by  him  in  pledge,  and  subsequently  sold,  or  who,  after  deducting 
from  the  proceeds  of  any  sale  the  amount  of  the  loan  and  interest 
due  thereon,  and  four  per  cent,  on  the  loan  for  expenses  of  sale, 
refuses,  on  demand,  to  pay  the  balance  to  the  pledgor,  or  his 
agent,  is  guilty  of  a  misdemeanor. 

619.  Connecticut.!  —  It  is  unlawful  for  any  pawnbroker, 
loan-broker,  or  any  person  who  lends  money  on  pledge  of  personal 
property,  to  sell  or.  dispose  of  any  personal  property  left  with 
him  in  pledge  for  money  loaned,  in  less  than  six  mouths  from 
the  day  when  the  same  is  left  in  pledge,  as  aforesaid. 

620.  Georgia.^  —  The  pawnee  may  sell  the  property  received 
in  pledge  after  the  debt  becomes  due,  and  remains  unpaid ;  but 
he  must  always  give  notice,  for  thirty  days,  to  the  pawnor  of 
his  intention  to  sell,  and  the  sale  must  be  in  public,  fairly  con- 
ducted, and  to  the  highest  bidder,  unless  otherwise  provided  by 
contract. 

621.  Louisiana.^  —  The  creditor  cannot  himself,  in  case  of 
failure  of  payment,  dispose  of  the  pledge;  but  where  there  have 
been  pledges  of  stock,  bonds,  or  other  property,  for  the  payment 
of  any  debt  or  obligation,  it  is  necessary  before  such  stocks, 
bonds,  or  other  property  so  pledged  shall  be  sold  for  the  payment 
of  the  debt  for  which  such  pledge  was  made,  tliat  the  holder  of 
such  pledge  be  compelled  to  obtain  a  judgment  in  the  ordinary 
course  of  law ;  and  the  same  formalities  in  all  respects  shall  be 
observed  in  the  sale  of  property  so  pledged  as  in  ordinary  cases. 
Any  provision  which  should  authorize  the  creditor  to  appropriate 

1  Acts,  1875,  c.  82;  Acts,  1877,  c.         ^  ]^.  Civ.  Code,  1870,  p.  376,  Art. 
126.  3165. 

3  Code,  1873,  §2140. 
468 


STATUTORY   PROVISIONS   REGULATING  SALES.  [§  622. 

the  pledge  to  liimself,  or  dispose  of  it,  without  the  prescribed 
formalities,  is  null. 

But  a  pledgee  of  a  negotiable  note  may  collect  it  by  suit.^ 

622,  Maine.^ —  The  holder  of  stocks,  bonds,  or  any  other  per- 
sonal property  in  pledge  for  the  payment  of  money  or  the 
performance  of  any  other  thing,  may,  after  failure  to  pay  or 
perform,  give  written  notice  to  the  pledgor  that  he  intends  to 
enforce  paiyment  by  a  sale  of  the  pledge ;  which  notice  shall  be 
served  by  leaving  a  copy  with  the  pledgor,  if  he  resides  within 
this  state  and  his  residence  is  known  to  the  holder,  otherwise  by 
publishing  it  at  least  once  a  week  for  three  successive  weeks,  in 
one  of  the  principal  newspapers  in  the  city  or  town  where  the 
pledgee  resides,  or  if  there  is  no  such  paper,  in  one  of  the  prin- 
cipal newspapers  published  in  the  county,  or  in  the  state  paper. 
Such  notice,  together  with  an  affidavit  of  service,  shall  be  re- 
corded in  clerk's  office  of  the  city  or  town  where  the  pledgee 
resides. 

If  the  money  to  be  paid  or  the  thing  to  be  done  is  not  paid  or 
performed,  or  tender  thereof  made  within  sixty  days  after  such 
notice  is  so  recorded,  the  holder  may  sell  the  pledge  at  public 
auction,  and  apply  the  proceeds  to  the  satisfaction  of  the  debt 
or  demand,  and  the  expenses  of  the  notice  and  sale,  and  any 
surplus  shall  be  paid  to  the  party  entitled  thereto  on  demand. 

It  is  also  provided  3  that  no  pawnbroker  shall  sell  any  property 
pawned  until  it  has  remained  in  his  possession  three  months  after 
the  expiration  of  the  time  for  which  it  was  pawned  ;  and  all 
such  sales  shall  be  at  public  auction  by  a  licensed  auctioneer,  and 
after  notice  of  the  time  and  place  of  sale.  The  name  of  the  auc- 
tioneer, and  a  description  of  the  property  to  be  sold  are  published 
in  a  newspaper  in  the  town  where  the  pi'operty  is  pawned,  if  any, 
and  if  not,  posted  in  two  public  places  therein  at  least  two  weeks 
before  the  sale ;  and  all  sales  of  such  property  otherwise  made, 
shall  be  wholly  void,  and  the  pawnbroker  undertaking  to  make 
the  same,  shall  forfeit  twenty  dollars  for  every  such  offence. 

After  deducting  from  the  proceeds  of  any  sale  as  aforesaid  the 
amount  of  the  loan,  the  interest  then  due,  and  the  proportional 
part  of  the  expenses  of  sale,  such  pawnbroker  shall  pay  the  bal- 

1  Ducasseu.  McKcnna,  28  La.  Ann.         ^  Acts,  1875,  c.  53. 
419;  Dolbonde's  Succession,  21  lb.  3,  »  R.  S.  1871,  c.  35,  §§  4,  5. 

469 


§§  623,  624.]      REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

ance  to  the  person  entitled  to  redeem  such  property  if  no  sale 
had  been  made  ;  and  if  not  so  paid  on  demand,  he  shall  forfeit 
double  the  amount  so  retained,  one  half  to  the  use  of  the  pawnor, 
and  the  other  to  the  use  of  the  state. 

623.  Massachusetts.^  —  The  holder  of  personal  property  in 
pledge  for  the  payment  of  money  or  the  performance  of  any 
other  thing,  may,  after  failure  to  pay  or  perform,  give  written 
notice  to  the  pledgor  that  he  intends  to  enforce  payment  or  per- 
formance by  a  sale  of  the  pledge,  and  such  notice  shall  be  served, 
and  together  with  an  affidavit  of  service  be  recorded  in  the  clerk's 
office  of  the  c\tj  or  town  where  the  pledgee  resides,  in  the  man- 
ner and  with  like  effect  as  provided  for  notices  of  foreclosure.^ 

If  the  money  to  be  paid  or  other  thing  to  be  done  is  not  paid 
or  performed,  or  tender  thereof  made,  within  sixty  days  after 
such  notice  is  so  recorded,  the  pledgee  may  sell  the  pledge  at 
public  auction  and  apply  the  proceeds  to  the  satisfaction  of  the 
debt  or  demand,  and  the  expenses  of  the  notice  and  sale,  and 
any  surplus  shall  be  paid  to  the  party  entitled  thereto  on  de- 
mand. 

The  preceding  sections  shall  not  authorize  the  pledgee  to  dis- 
pose of  the  pledge  contrai-y  to  the  terms  of  the  contract  under 
which  it  is  held,  nor  limit  his  right  to  dispose  of  it  in  any  other 
manner  allowed  by  the  contract  or  by  the  rules  of  law.^ 

624.  Missouri.*  —  In  case  the  person  obtaining  the  loan  from 
a  pawnbroker  fails  to  pay  the  interest  when  due,  the  pawnbroker 
shall  not  sell  the  article  or  articles  so  pawned  with  him  as  secu- 
rity for  such  loan  till  after  the  expiration  of  sixty  days  from  the 

1  G.  S.  18fi0,  p.  767,  §§  9-11  ;  P.  S.  be  admitted  as  evidence  of  the  giving 
1882.  c.  192,  §§  10-12.  of  such  notice.     P.  S.  c.  192,  §§  7,  8. 

2  That  is,  the  notice  shall  be  served  ^  This  statute  not  only  authorizes  a 
by  leaving  a  copy  witli  the  pledgor  or  sale  of  the  thing  pledged  under  a  for- 
by  publishing  it  at  least  once  a  week  mal  power  of  sale  agreed  upon  in  tlie 
for  three  successive  weeks,  in  one  of  contract  of  pledge,  but  also  a  sale  in 
the  principal  newspapers,  published  in  accordance  with  an  informal  or  verbal 
the  town  or  city  where  the  property  is  consent  of  the  j)ledgor  given  any  time 
situated,  or  if  there  is  no  sucli  paper,  in  before  the  sale  uj)on  default.  Covell  v. 
one  of  the  principal  newsjjapers  pub-  Loud,  134  Mass.  — ;  <S.  C.  16  Cent, 
lished    in    the    county,     'the    notice,  L.  J.  471. 

with  the  affidavit  of  service,  when  re-  *  R.  S.  1879,  §  6469;  Laws,  1879,  p. 
corded,  or  a  copy  of  the  record  may     162,  §  2. 

470 


STATUTORY   PROVISIONS   REGULATING   SALES.  [§  625. 

date  of  such  failure;  and  the  person  so  failing  may,  at  any  time 
within  the  said  sixty  days,  redeem  said  article  or  articles  ;  pro- 
vided that  he  pay  the  full  amount  of  principal  and  interest  due, 
according  to  the  terms  of  the  contract,  at  the  date  of  redeeming  ; 
but- if  the  person  obtaining  the  loan  fail  to  redeem  said  article  or 
articles  within  the  said  sixty  days,  as  above  provided,  he  shall 
thereby  forfeib  all  his  right,  title,  and  interest  in  and  to  such 
articles  to  the  pawnbroker,  who  shall  thereby  acquire  and  possess 
an  absolute  right  in  them,  and  to  hold  and  dispose  of  them  as  his 
own  property. 

625.  New  Hampshire.^  —  Any  person  having  a  lien  on  any 
personal  property  by  pledge  or  otherwise,  where  no  time  is  lim- 
ited for  the  payment  of  the  debt  or  redemption  of  the  prop- 
erty, may  sell  the  same,  or  so  much  thereof  as  is  needful,  at  auc- 
tion, notice  thereof  being  given  as  hereinafter  required,  and  from 
the  proceeds  reimburse  himself  for  said  debt  and  the  expenses 
incident  to  such  sale.  If  a  time  is  limited  for  the  payment  of 
such  debt  or  the  redemption  of  such  property,  the  property  may 
be  sold  at  any  time  after  the  expiration  of  said  time  upon  like 
notice,  provided  the  same  shall  not  be  in  conflict  with  the  terms 
of  the  contract  under  which  it  is  holden.  Notice  of  such  sale 
shall  be  given  by  posting  notices  thereof  in  two  or  more  public 
places  in  the  town  where  such  property  is  situate,  and  if  the 
value  of  the  property  exceeds  one  hundred  dollars,  by  publishing 
notice  thereof  three  weeks  at  least  before  the  sale.  A  notice  of 
such  sale  shall  be  served  upon  the  pledgor  or  general  owner,  if 
resident  in  the  county,  the  same  number  of  days  before  the  sale, 
stating  in  writing  the  time  and  place  of  sale,  the  property  to  be 
sold,  and  the  amount  of  the  lien  thereon.  The  balance  of  the 
proceeds  of  such  sale,  if  any,  after  payment  of  the  amount  of 
such  lien  or  pledge,  and  the  reasonable  expenses  incident  to  such 
sale,  shall  be  paid  to  the  pledgor,  general  owner,  or  person  en- 
titled thereto,  on  demand.  The  holder  of  such  lien  shall  cause  a 
copy  of  such  notices  and  affidavit  of  service,  with  an  account  of 
such  sale  and  the  fees  and  charges  thereon,  to  be  recorded  in  the 
books  of  the  town  where  such  sale  is  had,  and  a  certified  copy 
thereof  may  be  used  in  evidence. 

^  Gen.  Laws,  1878,  p.  333,  §§  3-8. 

471 


§§  626-629.]      REMEDIES  OF   THE  PLEDGEE   AFTER   DEFAULT. 

626.  New  Jersey.  —  All  goods  pledged  or  pawned  shall  be 
kept  for  the  term  of  one  year  by  the  pawnbroker  receiving  the 
same  in  pledge,  unless  sooner  redeemed.  If  goods  pledged  or 
pawned  to  any  such  pawnbroker  shall  remain  unredeemed,  and 
no  interest  upon  the  loan  thereon  shall  have  been  paid  for  the 
space  of  one  year,  such  goods  may  then  be  sold  by  said  pawn- 
broker, but  notice  of  such  sale  shall  be  given  by  advertisement 
in  at  least  two  newspapers  printed  and  published  in  said  county, 
for  at  least  two  weeks  prior  to  such  sale,  and  said  sale  shall  be  at 
public  vendue  to  the  highest  bidder,  and  in  no  other  manner. 
These  provisions  do  not  apply  to  municipalities  having  charter 
regulations  respecting  pawnbrokers.^ 

627.  Rhode  Island.^  —  No  pawnbroker  shall  sell  or  dispose 
of  any  property  so  pawned  with  him  within  three  months  after 
the  maturity  of  the  loan  thereon,  and  for  every  violation  of  this 
section  such  pawnbroker  shall  be  fined  not  exceeding  five  hun- 
dred dollars,  and  his  license  shall  thereupon  become  void. 

628.  Tennessee.^  —  After  the  expiration  of  the  time  for 
which  the  article  is  pawned,  the  pawnbroker  shall  have  the  right 
to  sell  at  auction  the  article  so  pawned,  and  out  of  the  proceeds 
of  said  sale  he  will  deduct  the  amount  due  him,  with  legal  rate 
of  interest,  and  the  balance,  if  any,  he  will  pay  to  the  pawnor  or 
assignee,  provided  always  the  time  may  be  lengthened  by  writ- 
ten agreement  between  the  parties. 

629.  Texas.^ — If  any  article  deposited  with  a  broker  as  a 
pawn  shall  not  be  redeemed  at  or  before  the  time  agreed  upon, 
the  broker  shall  sell  the  same  at  public  auction  to  the  higliest 
bidder  for  cash,  at  his  usual  place  of  business,  after  giving  at 
least  five  days'  notice  of  such  sale.  Such  notice  of  sale  shall  be 
given  by  posting  written  or  printed  advertisements  at  not  less 
than  three  public  places  in  the  county  where  such  sale  is  to  take 
place,  one  of  which  places  shall  be  the  court-house  of  such  county. 
The  written  advertisements  of  sale  shall  state  the  time  and  place 
of  such  sale,  and  shall  contain  a  full  description  of  the  article  or 
articles  to  be  sold,  and  the  name  or  names  of  the  person  or  per- 

1  R.  S.  1877,  p.  812,  §§  3-5.  »  Acts,  1879,  c.  100,  §  4. 

«  P.  S.  1882,  c.  90,  §  4.  *  R.  S.  1879,  p.  499,  §§  3499-3508. 

472 


STATUTORY  PROVISIONS  REGULATING   SALES.  [§  629. 

sons  depositing  the  same,  and  a  copy  thereof  shall  be  filed  in  the 
office  of  the  clerk  of  the  county  court  of  the  county  where  such 
sale  takes  place.  All  sales  made  by  a  pawnbroker  shall  be 
made  between  the  hours  of  ten  o'clock  A.  M.  and  four  o'clock, 
P.  M.,  and  no  sale  shall  be  made  upon  Sunday,  or  upon  a  legal 
holiday. 

When  a  sale  has  been  made  the  pawnbroker  shall,  within  five 
days  thereafter,  file  with  the  clerk  of  the  county  court  of  the 
county  where  such  sale  was  made,  a  report  in  writing  and  under 
oath,  showing,  1st.  The  time  and  place  of  such  sale.  2d.  The 
notice  given  thereof.  3d.  A  full  description  of  the  property  sold 
and  by  whom  deposited.  4th.  By  whom  purchased,  and  the 
amount  which  each  article  was  sold  for.  5th.  The  amount  due 
the  broker,  principal,  interest  and  expenses  upon  each  article 
sold.  6th.  The  amount  of  surplus  of  the  proceeds  of  sale  of  each 
article,  if  any,  after  deducting  the  amount  due  the  broker  of  prin- 
cipal, interest,  and  expenses.  The  expenses  named  in  the  prece- 
ding article  shall  be  such  expenses  as  have  been  agreed  upon  by 
the  parties  to  the  contract,  or  if  there  be  no  agreement  in  regard 
thereto,  then  the  reasonable  expenses  of  the  sale  only,  such  as  rea- 
sonable auctioneers'  commissions,  shall  be  allowed  and  deducted. 

The  owner  or  depositor  of  the  property  so  sold,  sluill  be  en- 
titled upon  demand  to  receive  from  such  broker  the  surplus  of 
the  proceeds  of  such  sale,  at  any  time  within  thirty  days  after 
such  sale,  and  if  no  demand  therefor  be  made  within  thirty  days 
after  such  sale,  such  surplus  shall  become  the  property  of  the 
county  where  such  sale  was  made.  Should  there  be  any  surplus 
of  the  proceeds  of  any  sale  made  by  a  broker,  he  shall  at  the  ex- 
piration of  thirty  days  from  the  day  of  such  sale,  pay  such  surplus 
to  the  county  treasurer  of  the  county  where  such  sale  was  made,  or 
he  shall  file  with  such  county  treasurer  the  receipt  of  the  owner 
or  depositor  of  the  property  sold,  for  such  surplus  at  the  expira- 
tion of  said  thirty  days.  Suit  may  be  brought  upon  the  bond  of 
the  pawnbroker  by  the  county,  or  by  any  party  entitled  to  the 
surplus  of  any  sale  made  by  him,  and  upon  recovery,  judgment 
shall  be  rendered  against  such  pawnbroker,  and  the  sureties  upon 
his  bond,  for  the  amount  of  such  surplus,  together  with  ten  per 
cent,  per  month  on  such  amount  for  each  month  or  fraction  of  a 
month  that  such  surplus  has  been  illegally  withheld  by  such 
pawnbroker. 

473 


§§  630-632.]      REMEDIES   OF  THE   PLEDGEE   AFTER   DEFAULT. 

630.  Virginia.^ — Any  person  making  a  pledge  of  property 
to  a  pawnbroker  for  money  loaned  or  advanced,  who  shall  not  pay 
or  return  the  money  so  loaned  or  advanced  within  sixt}'  days  after 
the  date  fixed  for  the  paj'ment  or  return  of  the  money,  shall  for- 
feit his  right  to  redeem  the  property  pledged.  After  such  person 
shall  have  forfeited  his  right  to  redeem  the  property,  the  pawn- 
broker may  cause  said  property  to  be  sold  at  auction  by  any 
licensed  auctioneer.  The  expenses  attending  the  sale  shall  be 
paid  out  of  the  proceeds  of  the  sale,  and  if  any  surplus  arise 
from  the  sale  after  satisfying  the  money  advanced,  with  the  in- 
terest and  costs  which  may  have  accrued,  such  surplus  shall  be 
paid  over  to  the  person  depositing  the  property  as  aforesaid. 

V.    Sales  under  Powers  of  Sale. 

631.  A  power  of  sale,  whether  given  in  a  mortgage  or  in 
a  pledge,  is  an  authority  coupled  with  an  interest,  and  passes 
to  the  pledgee's  representatives.^  Whatever  remedy  the  creditor 
has  for  the  enforcement  of  his  security  passes  upon  his  decease 
to  his  representatives.^  Such  a  power  is  not  affected  by  an 
attachment  of  the  property  in  a  suit  against  the  pledgor,  nor 
by  summoning  the  pledgee  as  a  trustee  or  garnishee  in  such 
suit.^ 

632.  Authority  to  sell  collateral  security  is  terminated  by 
satisfaction  of  the  principal  debt.  Thus  if  a  debt  secured  by 
a  mortgage  of  chattels  be  further  secured  by  a  pledge  of  negoti- 
able notes  with  a  power  to  sell  them  upon  default,  and  the  mort- 
gaged chattels  be  disposed  of  by  the  creditor  in  such  a  manner 
as  to  satisfy  the  debt  secured,  his  subsequent  sale  of  the  col- 
laterals under  the  power  is  unauthorized,  and  he  is  liable  to 
account  for  their  actual  value  irrespective  of  the  price  received 
for  them.  If,  however,  any  part  of  the  mortgage  debt  remains 
unsatisfied  after  the  application  to  it  of  the  mortgaged  property, 
then  a  sale  of  the  collaterals  can  be  properly  made,  and  the 
creditor  in  accounting  for  a  surplus,  is  chargeable  with  only  the 
sum  for  which  the  collaterals  were  sold.^ 

1  Code,  187.3,  p.  334,  §  44.  •♦  Chapman  v.  Gale,  supra. 

2  Jones  on  Morfgacres,§  1792;  Chap-  ^  Mowry  v.  First  Nat.  Bank,  54 
man  v.  Gale,  32  N.  H.  141.  Wis.  38. 

8  Henry  v.  EJdv,  34  111.  508. 

474 


SALES   UNDER    POWERS   OF    SALE.  [§§  633-635. 

633.  Where  the  subject-matter  of  a  pledge  is  divisible, 
the  pledgee  should  not  sell  under  a  power  of  sale  more  of  the 
property  than  is  sufficient  to  pay  the  debt  secured,  and  if  he 
does  so  he  may  be  responsible  to  the  pledgor  for  the  damages  he 
may  thereby  sustain  ;  such  damages  being  the  difference  between 
the  price  for  which  the  property,  in  excess  of  the  amount  required, 
was  sold,  and  the  price  at  which  the  pledgor  could  replace  it.^ 
It  is  declared  that  stronger  reasons  exist  for  the  application  of 
this  rule  in  the  case  of  pledges,  than  exist  in  the  cases  of  mort- 
gages or  deeds  of  trust  with  powers  of  sale,  because  a  pledge,  un- 
like those  securities,  does  not  pass  the  legal  title  of  the  property, 
but  only  the  possession  of  it,  as  security  for  the  debt,  aud  that 
the  pledgee  in  exercising  the  power  of  sale  acts  strictly  for  the 
pledgor,  in  whom  the  legal  title  is  still  vested.^ 

If  several  things  are  held  in  pledge  the  creditor  upon  default 
may  sell  either  or  any  of  them  at  his  discretion  from  time  to  time 
till  the  debt  is  fully  satisfied. 

634.  If  the  pledgor  has  mixed  the  articles  pledged  with 
others  belonging  to  himself,  a  sale  of  the  whole  will  be  valid 
and  binding,^  especially  if  the  terms  of  sale  are  broad  enough  to 
cover  the  whole,  as  for  instance  when  they  embrace  all  the  ma- 
terials in  a  certain  building.* 

635.  A  pledgee  cannot  directly  or  indirectly  purchase  at 
a  sale  of  the  pledge  under  a  power,  unless  it  is  specially  pro- 
vided b}^  the  terms  of  the  power  that  he  may  do  so.  Nothing 
passes  by  the  form  of  a  sale,  and  the  pledgee  still  holds  the  prop- 
erty, under  his  original  lien  as  collateral  security.^  The  title  is 
still  in  the  pledgor,  and  the  pledgee  is  still  liable  to  account  for 

1  Fitzgerald  r.  Blocher,  32  Ark.  r.  Shields,  3  Brews.  (Pa.)  257 ;  Mary- 
742.  land  F.  Ins.  Co.  i*.  Dulrvmple,  25  Md. 

2  FitzgeraM  V.  Blocher,  su/jra.  242;    Baltimore    Marine   Ins.   Co.   v. 
'  Jones     on     Chattel     Mortgages,     Dalrymple,   25    Md.  2G9 ;    Morgan  v. 

§§  155,  483.  Dod,  3  Colo.  551  ;  Ciiouteau  r.  Allen, 

*  Clark  I?.  Boiivain,  20  La.  Ann.  70.  70  Mo.  290;    Thornton    v.  Irwin,  43 

6  Middlesex  Bank  r.  Minot,  4  Mete.  Mo.    153;    Bank   v.    Railroad    Co.   8 

(Mass.)  325;  Blood  y.  Ilayman,  13  lb.  Iowa,  277;  Indiana  &  111.   Cent.  Ily. 

231;    Cliicago    Artesian    Well    Co.  v.  Co.  v.  MeKernan,  24   Ind.  62;  Jones 

Corey,  60  111.  73;  Killian  v.  IIofTnian,  on    Mortgages,   §§  1878-1S8.S;   Jones 

6  Bradw.  (111.)  200  ;  Stokes  r.  Frazier,  on  Chattel  Mortgages,  §§  806-815. 

72  111.  428;  llestonvilie,  &c.  11.  K.  Co.  _ 

475 


§§  636,  637.]      REMEDIES   OF   THE   PLEDGEE   AFTER  DEFAULT. 

the  property  and  to  deliver  it  upon  payment  of  the  debt.  But 
such  a  sale  and  purchase  is  no  ground  for  nonsuiting  the  pledgee 
in  an  action  subsequently  brought  by  him  to  recover  a  balance 
of  the  debt  secured  ;  but  ground  only  for  charging  the  debtor 
in  such  suit  with  the  full  value  of  the  property  pledged.^ 

A  pledgee  of  a  mortgage  who  sells  the  mortgaged  property  for 
a  sura  less  than  the  mortgage  debt,  and  himself  becomes  the 
purchaser  at  the  sale,  and  immediately  resells  it  for  a  greater 
sum  than  the  mortgage  debt,  is  bound  to  account  to  the  pledgor, 
not  for  the  sum  at  which  he  purchased  nor  for  the  price  at  which 
he  sold  ;  but  for  the  amount  of  the  mortgage  debt.^  That  is  the 
extent  of  the  pledgor's  interest  in  the  mortgage. 

636.  A  general  partner  in  a  firm  holding  property  in  pledge 
is  incapacitated  from  purchasing  at  a  sale  made  by  the  firm 
equally  with  the  firm  itself,  because  such  a  partner  is  cine  of  the 
persons  who  have  a  dut}^  to  perform  in  the  conduct  of  the  sale 
which  is  inconsistent  with  the  character  of  a  purchaser.  But  a 
special  partner  is  not  incapacitated  by  his  relations  with  the  firm 
from  becoming  a  purchaser;  for  he  has  no  share  in  the  manage- 
ment of  the  affairs  of  the  firm,  and  is  therefore  not  one  of  the 
persons  charged  with  the  duty  of  selling  the  property  at  the  best 
price  that  can  be  reasonably  obtained.^ 

637.  But  a  pledgee  who  purchases  the  pledge  at  a  public 
sale  is  not  chargeable  with  a  conversion  of  it.  Such  a  sale  is 
ineffectual  to  change  the  title  to  the  property  which  remains 
vested  in  the  pledgor  as  it  was  before  the  sale ;  but  that  is  the 
only  result.*  The  sale  is  not  void  but  voidable  at  the  election  of 
the  defendant.  The  debtor  is  at  liberty  to  ratify  the  sale,  and 
should  he  do  so  it  would  be  valid  for  all  purposes.  The  ratifica- 
tion would  make  it  lawful  and  relieve  it  from  any  imputation  of 
being  tortious  as  to  the  debtor.  The  pledgee's  title  to  the  prop- 
erty would  thereby  become  perfect,  and  the  debtor  would  be  en- 
titled to  credit  upon  his  debt  for  the  net  proceeds  of  the  sale.    But 

1  Duden    v.  WaitzfelJer,   16    Ilua  *  Bryan   v.  Baldwin,    7   Lans.    (N. 

(N.  y.),  337.  Y.)  174;  affirmed,  52  N.  Y.  232;  Can- 

'^  Richardson  v.  Mann,  30  La.  Ann.  field    v.  Minneapolis    Agricnltural   & 

1060.  Mecbanieal    Asso.   (  C.   C.  D.   Minn. 

3  Lewis  V.  Graham,  4  Abb.  (N.  Y.)  1883),  14  Fed.  Rep.  801. 
Pr.  106. 

476 


SALES   UNDER  POWERS   OF   SALE.  [§  638. 

if  the  debtor  does  not  do  this,  but  elects  to  treat  the  purchase  by 
the  pledgee  as  illegal,  the  sale  thereupon  is  void,  and  the  parties 
are  remitted  to  their  rights  as  they  existed  before  any  sale  was 
made  or  attempted.  The  debtor  is  liable  upon  his  debt,  and  the 
creditor  still  holds  the  property  in  pledge.^ 

638.  The  pledgor  may,  however,  elect  to  treat  such  sale  as 
valid  ;  ^  and  such  election  would  be  inferred  from  his  acceptance, 
with  full  knowledge  of  the  facts,  of  the  proceeds  of  such  sale,  to 
be  applied  as  a  credit  on  the  indebtedness  for  which  the  pledge 
was  made.  The  sale  is  also  valid  when  the  pledgee  has  purchased 
with  the  consent  of  the  pledgor ;  and  such  assent  may  be  pre- 
sumed where  the  facts  are  notorious  and  no  dissent  is  shown.^  A 
promise  by  the  pledgor  made  after  the  sale  with  full  knowledge 
of  the  facts  to  pay  a  deficienc}'  due  to  the  pledgee  is  also  a  waiver 
of  any  irregularity  in  the  sale.* 

Even  under  a  statute  which  provides  that  "  a  pledgee  or  pledge- 
holder cannot  purchase  the  property  pledged,  except  by  direct 
dealing  with  the  pledgor,"^  it  is  held  that  a  sale  made  by  a 
pledgee  in  contravention  of  the  statute  may  be  ratified  by  the 
pledgor.^  "  The  section  was  undoubtedly  enacted  for  the  protec- 
tion of  the  pledgor  —  to  the  end  that  no  unfair  advantage  be  taken 
of  him.  It  prohibits  a  pledgee  or  pledge-holder  from  purchasing 
the  property  pledged, '  except  by  direct  dealing  with  the  pledgor.' 
By  such  dealing  with  the  pledgor,  the  pledgee  may  purchase  it. 
Why  should  it  be  held  that  by  this  is  meant  that  the  pledgee  or 
pledge-holder  can  only  purchase  by  taking  a  direct  transfer  from 
the  pledgor  ?  The  statute  does  not  s^-y  so,  and  the  reason  of  the 
prohibition  suggests  the  contrary.  If  the  pledgor  chooses  to  do 
so,  we  see  no  reason  why  he  may  not  consent  that  the  pledgee 
may  buy  at  the  public  sale.  In  some  cases  it  may  be  to  his  interest 
that  this  be  done.    Such  consent  may  be  given  either  at  the  mak- 

1  Per  Grover,  J.,  in  Bryan  v.  Bald-  ^  Carroll  v.  Mullanpliy  Sav.  Bank, 
win,  52  N.  Y.  232,  affirnaing  S.  C.  1  8  Mo.  App.  249 ;  Hamilton  v.  State 
Lans.  174.  Bank,  22  Iowa,  30G. 

2  Stokes   V.    Frazier,    72    III.    428,  *  Child  v.  Ilugg,  41  Cal.  512,  519. 
per  Walker,  C.  J.;  Chouteau  v.  Allen,  ^  California  Civ.  Code,  §  3010. 
70    Mo.    2'JO,    335  ;    per    Sherwood,  "^  Child  v.  Ilugg,  supra. 

C.J. 

See,  however,  Fitzgerald  v.  Blochcrj 
32  Ark.  742. 

477 


§§  639,  640.]       REMEDIES   OF   THE   PLEDGEE   AFTER   DEFAULT. 

ing  of  tlie  pledge  or  at  aii}'^  subsequent  time  without  changing 
'  the  form  of  the  original  contract,'  and  without  consideration."  ^ 

639.  A  pledgee  who  has  purchased  the  collateral  is  not 
estopped  to  show  that  the  sale  was  made  for  the  purpose  of 
valuing  the  security  by  agreement  between  the  pledgee  and  a 
person  liable  upon  another  debt  secured  by  the  same  collateral. 
Thus  a  pledgee  in  an  action  upon  the  principal  debt  which  the 
pledgor  claims  has  been  paid  by  a  sale  of  bonds  held  as  collateral, 
may  show  by  parol  evidence  that  the  bonds  were  also  held  as  col- 
lateral for  other  debts,  and  that  a  party  liable  upon  another  debt 
so  secured  became  bankrupt,  and  that  the  plaintiff  made  an  ar- 
rangement with  the  assignee  in  bankruptcy  of  such  party,  by 
which  the  bonds  were  sold  at  public  auction,  the  creditor  agree- 
ing to  bid  a  certain  sum  for  them,  and  to  prove  the  balance  of 
the  claim  against  the  bankrupt's  estate  ;  that  there  being  no 
higher  bid  the  pledgee  kept  the  bonds  and  proved  the  remainder 
of  the  claim.  The  pledgee  may  show  the  real  nature  of  the  trans- 
action, and  that  the  sale  was  merely  for  the  purpose  of  agreeing 
with  the  assignee  upon  the  value  of  the  bonds,  so  that  proof  could 
be  made  against  the  bankrupt's  estate  ;  that  in  short  there  was 
no  actual  sale,  and  that  the  bonds  never  left  the  hands  of  the 
pledgee.^ 

VI.  Sales  under  Proceedings  in  Equity. 

640.  The  earliest  common  law  rule  in  regard  to  a  sale  of 
the  property  upon  default  was  that  before  the  pledge  could  be 
sold,  the  pledgee  was  required  to  bring  a  suit  in  equity  and 
obtain  authority  to  sell  by  judicial  proceeding.^  Such  was  the 
rule  of  the  civil  law  ;  *  and  such  also  is  the  rule  under  the  Civil 
Code  of  Louisiana,  where  even  a  power  to  the  pledgee  to  sell  the 
object  pledged  is  a  nullity  even  as  between  the  parties.  There 
can  be  no  sale  except  by  virtue  of  a  judicial  order.^ 

A  pledgee  may  properly  enforce  his  lien  by  a  bill  in  equity, 
especially  when  the  contract  of  pledge  neither  provides  for  the 

1  Hill  V.  Finnigan,  10  Pacific  Coast  §  1008  ;  Ogden  o.  Latlirop,  1  Sweeny 
L.  J.  576,  578.  (N.  Y.),  043,  per  Fithian,  J. 

2  Globe  National  Bank  r.  Ingalls,  ^  Hart  v.  Ten  Eyck,  2  Johns.  (N. 
126  Mass.  209.  Y.)  Ch.  62,  100,  per  Chancellor  Kent. 

3  2  Kent's  Com.  582;  2  Story's  Eq.  ^  K.    Civ.    Code,    1870,    art.    3165; 

Brother  t;.  Saul,  11  La.  Ann.  223. 
478 


SALES   UNDER   PROCEEDINGS   IN   EQUITY.  [§  G41. 

time  of  redemption  nor  the  manner  and  time  of  sale,  and  his 
rights  and  powers  are  in  any  manner  questioned  or  denied.^ 
This  remedy  is  more  complete  than  the  common  law  right  to  sell 
the  pledge,  after  notice.  The  pledgee  thereby  relieves  himself 
from  ulterior  questions  as  to  the  propriety  of  his  course,  and  the 
court  can  act  with  due  regard  for  the  rights  of  all  parties  con- 
cerned. In  equity  while  the  security  is  enforced  in  behalf  of  the 
creditor,  others  who  are  interested  in  it  are  fully  protected.^ 

It  may  become  necessary  or  desirable  to  proceed  in  equity  to 
enforce  a  pledge,  for  the  reason  that  the  pledgor  cannot  be  found 
so  that  a  personal  demand  can  be  made  upon  him  of  payment,  or 
so  that  a  personal  notice  of  the  time  and  place  of  sale  of  the 
pledge  can  be  served  upon  him.^ 

641.  There  is  jurisdiction  in  equity  to  enforce  a  pledge  in 
case  an  account  must  be  stated.  Even  where  jurisdiction  in 
equity  is  limited  to  cases  where  at  law  there  is  no  full,  complete, 
and  adequate  remedy,  a  court  of  equity  has  jurisdiction  to  enforce 
a  pledge  of  stock  given  as  security  for  claims  and  liabilities  then 
existing  or  afterwards  to  be  incurred,  when  these  claims  and  lia- 
bilities are  alleged  to  consist  of  a  large  number  of  items  of  money 
loaned,  notes  discounted  and  indorsements  made  for  accommoda- 
tion.* Such  a  case  gives  rise  to  a  matter  of  account ;  and  account 
is  a  matter  of  equity  jurisdiction. 

But  if  the  amount  due  rests  in  simple  computation  and  there 
are  no  other  liens  or  incumbrances,  there  is  no  necessit}'  for  rfsort 
to  a  court  of  equity,  as  the  remedy  b}^  notice  and  sale  of  the  prop- 
erty is  adequate ;  and  a  court  of  equity  would  probably  withhold 
its  aid  in  such  case.^  Where  there  is  a  pledge  for  a  definite  and 
ascertained  sum  there  is  no  occasion  for  an  account  before  the 
sale  ;  and  the  mere  fact  that  after  the  sale  there  may  be  some 
possibility  of  questions  of  account  arising,  such  as  to  require  the 

1  Boynton  i-.  Payrow,  67  Me.  587;  2  Homer  v.  Savings  Bank  of  New 
Brig'^'s  V.  Oliver,  G8  N.  Y.  336,  339,  Haven,  7  Conn.  4  78. 
per  Andrews,  J.;  Vaiipell  v.  Wood-  ^  Indiana  &  111.  Cent.  Ily.  Co.  v. 
ward,  2  Sandf.  (N.  Y.)  Ch.  143 ;  Sit-  McKernan,  24  Ind.  G2;  Stearns  v. 
greaves  v.  Farmers'  &  Meehanies'  Marsh,  4  Denio  (N.  Y.),  227. 
Bank,  49  Pa.  St.  359;  Cushman  v.  *  Conyngliam's  Appeal,  57  Pa.  St. 
Hayes,  46  III.  145;  Stokes  v.  Frazier,  474;  Durant  v.  Einstein,  5  Kobt.  (N. 
72  111.  428;   Robinson   v.  Hurley,    11      Y.)  423. 

Iowa,   410;    Arendale    v.   Morgan,    5         ^  jjupuy  v,  Gibson,  36  III.  197. 
Sneed  (Tenn.),  703. 

479 


§§  642,  643.]      REMEDIES   OF   THE  PLEDGEE   AFTER   DEFAULT. 

aid  of  a  court  to  adjust,  does  not  give  a  court  of  equity  jurisdic- 
tion to  decree  a  sale.^ 

642.  A  pledge  of  shares  of  a  land  association  was  fore- 
closed by  a  decree  of  sale  in  a  case  arising  in  Massachusetts 
where  the  jurisdiction  in  equity  was  at  the  time  of  limited  extent. 
Equitable  relief  was  also  required  in  this  case  because  the  certifi- 
cates provided  that  a  pledge  of  the  shares  might  be  made  by  the 
general  owner,  by  an  assignment  in  writing  approved  by  the 
trustees  and  recorded  in  the  books,  and  the  shares  in  pledge  still 
stood  in  the  name  of  the  general  owner  on  the  books  of  the  trus- 
tees, and  could  be  transferred  only  by  them  ;  and  such  a  transfer, 
or  some  instrument  of  conveyance  was  necessary  to  give  the 
pledgee  a  clear  title  to  the  shares.  The  deed  of  trust,  moreover, 
provided  that  all  transfers  should  be  subject  to  the  approval  of 
the  trustees,  although  the  owner  might  sell  to  an  assignee  not  ap- 
proved by  the  trustees,  if  they  should  not  within  a  limited  time 
offer  to  take  the  stock  at  the  price  offered,  for  the  common  bene- 
fit of  the  association.  The  court  declared  that  there  was  nothing 
in  the  facts  of  the  case  to  prevent  the  application  of  the  general 
rule  that  the  pledgee  may  sell  the  property  after  default ;  that 
the  entire  right  of  the  pledgor  in  the  certificate  was  pledged,  and 
that  the  ordinary  right  of  foreclosure  implied  in  a  pledge  of  stock 
or  personal  property  was  included.  It  was  further  declared  that 
the  transfer  to  be  made  under  the  decree  of  sale,  whether  it  be  to 
the  pledgee  himself  or  to  a  purchaser,  must  be  with  the  approval 
of  the  trustees,  or  after  refusal  by  them  to  purchase,  as  provided 
in  the  declaration  of  trust ;  that  if  the  certificate  be  sold,  it  should 
be  subject  to  that  condition,  and  if  transferred  to  the  pledgee, 
after  the  amount  at  which  it  should  be  taken  is  ascertained,  the 
trustees  should  have  an  opportunity  to  take  it  at  that  sum.^ 

643.  In  case  of  a  pledge  of  a  title  deed,  it  seems  that  there 
can  be  no  valid  sale  except  under  a  deci'ee  of  a  court  of  equity  ; 
for  such  a  pledge  is  really  an  equitable  mortgage,  and  the  remedy 
for  a  default  is  in  equity.  A  sale  of  the  deed,  which  is  really  all 
that  the  pledgee  can  effect  by  his  own  act,  is  an  imperfect  remedy, 

^  Thames  Iron  Works  Co.  v.  Patent         ^  Merchants'  Nat.  Bank  v.  Thomp- 
Derrick  Co.  1  Johns.  &  Hem.  93,  99;     son,  133  Mass.  482. 
per  Wood,  V.  C. 

480 


SALES  UNDER  PROCEEDINGS  IN   EQUITY.       [§§  644,  645. 

for  it  does  not  give  the  purchaser  possession  of  the  hind ;  and 
moreover  the  title  may  thus  be  separated  from  the  possession, 
and  great  damage  may  result  from  a  sacrifice  of  the  property  at 
an  inadequate  price.  In  a  case  where  a  lease  was  pledged  to  a 
solicitor  by  his  client,  the  latter  becoming  bankrupt,  the  former 
sold  the  lease.  In  a  suit  against  him  by  the  bankrupt's  as- 
signees, it  was  held  that  they  were  entitled  to  recover  the  full 
amount  the  solicitor  received  for  the  lease,  without  deducting  the 
amount  of  the  claim  secured.^  Chief  Justice  Tindal,  delivering 
judgment,  said  :  "  Now  that  lease  at  the  time  of  such  sale  was  in 
the  possession  of  the  defendant,  as  a  pledge  or  security  for  the 
payment  of  his  demand  against  the  bankrupt,  being  either  in  his 
possession  as  solicitor,  under  a  claim  upon  it  for  his  lien,  which 
the  law  gives  him,  or  having  been  expressly  deposited  with  him 
as  a  security  for  his  demand.  In  either  case  the  right  and  power 
of  the  defendant  over  the  lease  was  precisely  tiie  same ;  he  had  a 
right  to  retain  the  lease  in  his  possession  until  his  demand  was 
paid,  and  so  far  by  means  of  the  possession  of  the  lease  to  enforce 
payment  of  his  demand,  but  he  had  that  right  only;  he  had  a 
right  to  sell  the  lease  and  to  pay  himself  his  demand  out  of  the 
proceeds.  So  long  as  the  lease  remained  in  his  possession,  neither 
the  bankrupt  nor  his  assignee  could  retake  it  witliout  either  pay- 
ment of  the  demand,  or  a  tender  and  refusal,  which  is  equivalent 
to  payment.  But  if  instead  of  keeping  the  thing  pledged  he  sells 
it  or  enables  any  other  person  to  sell  it,  by  concurring  in  the  sale, 
he  is  guilty  of  a  direct  conversion  and  makes  himself  liable  for 
the  value  of  the  lease  in  an  action  of  trover." 

644.  A  factor  may  enforce  his  lien  by  an  equitable  suit. 
He  is  generally  regarded  as  invested  with  the  rights  of  a  pledgee.^ 
In  such  suit  the  factor  may  enforce  his  lien  not  merely  for  his 
commissions  and  advances  upon  particular  goods  consigned,  but 
for  the  general  balance  of  his  account ;  and  he  is  entitled  therein 
to  judgment  for  any  deficiency  that  may  exist  after  the  sale  of  the 
consigned  goods.^ 

645.  A  provision  for  a  summary  sale  of  collateral  secu- 

1  Clark  V.  Gilbert,  2  Bing.  (N.  C.)  »  Whitman  v.  Ilorton,  4G  N.  Y.  Su- 
343,  356.  pcrior  Ct.  531. 

3  Edw.  on  Biiilin.  213,  220. 

31  481 


§§  6-46,  647.]      REMEDIES   OF   THE   PLEDGEE   AFTER  DEFAULT. 

rity  upon  default  does  not  exclude  a  sale  under  judicial  pro- 
ceedings. Thus,  a  stipulation  in  a  pledge  of  railroad  bonds  that 
in  case  of  default  the  pledgee  shall  have  the  right  to  sell  them, 
at  public  auction,  in  the  city  of  Chicago  upon  giving  a  specified 
notice,  simply  confers  a  right  of  sale  in  a  prescribed  manner, 
without  expressly  or  impliedly  excluding  other  lawful  proceed- 
ings for  the  attainment  of  the  same  object.  Neither  does  such 
a  provision  bind  the  pledgee  to  sell  tiie  bonds  in  the  city  of 
Chicago;  but  he  may  commence  proceedings  in  equity  to  enforce 
the  security  in  any  state  whose  courts  have  jurisdiction  of  the 
parties,  and  the  bonds  may  be  sold  wherever  the  decree  shall 
pre 


i-ovide.i 


646,  A  foreclosure  and  sale  of  a  pledge  may  be  decreed 
on  the  debtor's  default  in  payment  of  interest,  when  interest 
is  in  terms  or  by  necessary  implication  a  part  of  the  debt  secured. 
Thus  where  stock  in  a  corporation  has  been  pledged  for  the  "  re- 
demption of  certificates  of  debt,"  and  these  certificates  bind  the 
debtor  for  the  payment  of  "  the  sum  therein  mentioned  and  the 
interest  thereon,"  the  stock  is  bound  for  the  payment  of  the  in- 
terest itself,  and  a  foreclosure  may  be  decreed  on  default  in  pay- 
ment of  any  installment  of  interest.^ 

647.  There  can  be  no  decree  of  strict  foreclosure  of  a 
pledge.^  The  doctrine  that  an  equitable  mortgage  of  title  deeds 
is  entitled  to  foreclosure  does  not  apply.  "  The  principle  upon 
which  the  court  acts  in  the  latter  case  is,  that  in  a  regular  legal 
mortgage  there  has  been  an  actual  conveyance  of  the  legal  owner- 
ship, and  then  the  court  has  interfered  to  prevent  that  from  hav- 
ing its  full  effect,  and  when  the  ground  of  interfeience  is  gone 
by  the  non-payment  of  the  debt,  the  court  simply  removes  the 
stop  it  has  itself  put  on.  Then,  when  there  is  a  deposit  of  title 
deeds,  the  court  treats  that  as  an  agreement  to  execute  a  legal 
mortgage,  and  therefore  as  carrying  with  it  all  the  remedies  in- 
cident to  such   a  mortgage.     None  of  this  reasoning  applies  to 

^  Coffin  V.  Chicago  Northern  Pacific  on  Mortgages,  §  17  73;  Jones  on  Chat- 
Construction    Co.    67    Barb.   (N.  Y.)  tel  Mortgages,  §  7  78. 
337;  6\  C.  4  Hun,  625.  ^  Swasey  v.  Xorth   Carolina  R.  R. 

The   same  rule   apj)lies  as  regards  Co.  1  Hughes,  1 7. 
powers  of  sale  in  Mortgages.     Jones        *  Carter  v.  Wake,  4  Ch.  D.  605. 

482 


SURPLUS  PROCEEDS  OF  SALE.      [§§  648-650. 

a  pledge  of  chattels  ;  the  pledgee  never  had  the  absolute  owner- 
ship at  law,  and  his  equitable  rights  cannot  exceed  his  legal 
title."  1 

648.  The  court  may  authorize  the  pledgee  to  bid  when  a 
pledge  is  sold  under  decree  in  equity,  in  which  case  he  is  not 
allowed  to  conduct  the  sale.^ 

VII.  Surplus  Proceeds  of  Sale. 

649.  Whenever  the  purpose  of  the  pledge  is  satisfied  the 
pledgor's  right  to  the  surplus  becomes  absolute.^  Thus,  where 
a  life  insurance  policy  was  pledged,  and  after  the  death  of  the 
insured,  the  insurance  company  settled  with  the  pledgee  and 
agreed  to  pay  the  surplus  to  the  person  lawfully  entitled  to  it,  it 
was  held  the  executor  of  the  insured  had  a  purely  legal  claim  for 
the  surplus,  and  that  the  company  was  liable  to  pay  it  in  full 
■without  deduction  for  expenses  incurred  by  the  company  in  re- 
sisting unfounded  claims  upon  it  sought  to  be  established  by 
creditors  of  the  deceased  through  a  garnishment  process.* 

65Q.  The  pledgor  may  collect  the  surplus  due  him  by  suit 
at  law.  But  trover  will  not  lie  for  surplus  proceeds  of  a  sale  made 
in  pursuance  of  the  terms  of  sale  agreed  upon  by  the  parties.^ 
Assumpsit  is  the  proper  form  of  action.^  An  action  for  money 
had  and  received  will  not  lie  by  a  pledgor  against  his  pledgee, 
until  a  demand  has  been  made  upon  the  pledgee  for  the  surplus 
proceeds,  under  an  agreement  that  the  latter  shall  collect  the 
collateral  security  as  it  becomes  due  and  apply  the  proceeds  to 
the  paj'ment  of  the  debt. 

1  Carter  v.  Wake,  4  Cli.   D,  605,  ^  Jones    on    Mortgages,    §    1940  ; 
per  Jessell,  M.  R.  Stei)lu'ns  v.  Hartley,  2  Mont.  540. 
^  Carter  v.  Wake,  supra.  In  tliis  case  it  was  said  that,  "  when 
8  Earle   v.   N.   Y.   J>ife    Ins.    Co.   7  goods  have  been  intrusted  to  an  agent 
Daly  (N.    y.),  303 ;    Selden  v.   Ver-  or   factor  to   sell,  no   action  will   lie 
milya,  3  N.  Y.  525  ;  Jones  on  Chat-  against  him  for  the  proceeds  until  de- 
tel  Mortgages,  §  712;  Jones  on  Mort-  niand.    With  stronger  reason,  the  doc- 
gages,  §§  1^27-1940.  trine  apjjlies  where  property  lias  been 
<  Earle  v.  N.  Y.  Life  Ins.  Co.  supra,  intrusted  to  a  pledgee,  with  power  to 
s  Looinis  u.  Stave,  72  HI.  G23;  Tay-  sell    and    apply    the    proceeds    to  the 
lor  V.  Turner,  87  111.  29G.  payment  of  debts." 

483 


CHAPTER   XVII. 

REMEDIES  UPOX   PLEDGES   OP   NEGOTIABLE   PAPER. 

I.  Collateral  paper  cannot  be  enforced  by  1  IV.  Negjotiable   paper  taken    in^  payment, 
sale  except  by  special  power,  651-663.  687-691. 

11.  Suit  upon  collateral  paper,  664-680.  I    V.  Diliijence  in  collecting  collateral  paper, 

III.  Enforcing  principal  debt,  681-686.  692-719. 

I.    Collateral  Paper  Cannot  he  Enforced  by  Sale  Except  hy 
Special  Power. 

651.  Collateral  paper  cannot  be  enforced  by  sale.  A 
pledgee  of  commercial  paper  as  collateral  security  cannot,  in  the 
absence  of  a  special  authority  for  that  purpose,  sell  it  upon  the 
non-payment  of  the  debt,  and  upon  notice  to  the  pledgor,  either 
at  public  auction  or  private  sale ;  but  he  is  bound  to  hold  and 
collect  the  same  when  it  falls  due,  and  apply  the  money  to  the 
payment  of  the  debt  secured.^  The  reason  for  this  exception  to 
the  general  rule  in  relation  to  the  sale  of  property  pledged  is  that 
such  paper  has  no  established  market  value,  and  it  cannot  be 
presumed  it  was  the  intention  of  the  parties  thus  to  deal  with  it. 

A  usage  among  the  bankers  of  New  York  to  dispose  of  notes 
held  as  collateral,  hj  making  sale  of  them,  was  held  by  the  Court 
of  Appeals  of  New  York  to  be  void,  because  it  was  in  opposition 
to  this  rule  of  law.^  The  ground  of  the  decision  is,  that  notes, 
not  being  usually  marketable  at  their  fair  value,  must  generally 
be  sold  at  a  sacrifice,  and  so  injustice  would  be  likely  to  be  done 
to  the  debtor,  even  if  the  sale  were  at  public  auction  and  with 
notice. 

1  Fletcher    v.  Dickinson,    7    Allen         2  Wheeler  v.  Newbould,  16  N.  Y. 

(Mass.),  23;  Morris  Canal  &  Banking  392;    S.    C   5   Duer,   29;    Brown    v. 

Co.  V.  Lewis,  12  N.  J.  Eq.  323  ;  Garlick  Ward,  3  Duer  (N.  Y.),  G60  ;  Atlantic 

U.James,  12  Johns.  (N.  Y.)  14G  ;  Joliet  F.  &  M.  Ins.  Co.  v.  Boies,  6  lb.  583  ; 

Iron  &  Steel  Co.  v.  Scioto  Fire  Brick  Moody  v.  Andrews,  3D   Superior  Ct, 

Co.,  82  111.  548;  White  v.  Phelps,  14  (N.  Y.)  302;  affirmed,  64  N.  Y.  641  ; 

Minn.  27;  Union  Trust  Co.  v.  Rigdon  Morris  Canal  &  Banking  Co.  v.  Lewis, 

93  111.  458;   S.  C.  9   Cent.  L.  J.  480;  12  N.  J.  Eq.  323. 
Zimpleman  v.  Veeder,  98  111.  613. 

484 


COLLATERAL   PAPER   CANNOT   BE   ENFORCED   BY   SALE.       [§  652. 

A  special  power  to  sell  negotiable  paper  taken  as  collateral 
security  upon  default  in  payment  of  the  debt  is  not  exclusive  of 
every  other  means  of  rendering  the  security  available.  The 
pledgee  has  the  right  to  receive  payment  of  such  collateral  paper 
and  to  enforce  payment  of  it  b}'-  action. ^  Such  a  right  is  in- 
cident to  every  pledge  of  negotiable  paper.  When,  therefore,  an 
express  power  is  given  the  pledgee  to  sell  such  paper  upon  de- 
fault, the  necessary  conclusion  is  that  the  power  of  sale  is  given, 
not  for  the  purpose  of  restricting  or  curtailing  the  rights  of  the 
pledge,  but  for  the  purpose  of  enlarging  his  rights  and  making 
the  pledge  more  advantageous  to  him  by  giving  him  a  more  ef- 
fectual and  speedy  means  of  obtaining  money  from  his  security .^ 


652.  This  rule  may  be  suspended  by  agreement  of  the 
parties;  and  such  is  the  effect  of  a  written  agreement,  that, 
upon  default,  the  creditor  may  collect  the  pledged  notes,  or  may 
negotiate  them  for  the  purpose  of  liquidating  the  debt.^  But 
the  sale  in  such  case  must  be  made  in  good  faith  and  for  a  rea- 
sonable price,  and  must  be  exercised  in  the  usual  manner  of  a  sale 
of  a  pledge,  and  as  a  trust  for  the  debtor's  benefit  as  well  as  for 
the  creditor's  own  benefit.^  Thus,  certain  promissory  notes  were 
pledged  to  a  trust  company  as  collateral  security  for  a  debt  of  a 
smaller  amount,  with  authority  to  sell  the  same  on  maturity  of 
the  principal  debt,  "  at  public  or  private  sale,  without  advertis- 
ing the  same,  or  demanding  payment,  or  giving  notice."  The 
debt  not  being  paid  at  maturity,  the  trust  compau}^,  without 
demanding  payment  of  the  collateral  notes,  which  had  also  ma- 
tured, wrote  to  the  maker  of  them  that  these  notes  would  be  sold 
to  satisfy  the  debt,  and  offering  him  the  first  chance  to  purchase. 
A  few  days  later  the  company  surrendered  the  notes  to  the 
maker  upon  his  paying  the  amount  of  the  debt  for  which  they 
were  pledged  as  security,  this  amount  being  much  less  than  the 

1  Nelson  v.  Wellington,  5  Bosw.  8  Fraker  v.  Reeve,  36  Wis.  85; 
(N.  Y.)  178;  Brookman  v.  Metcalf,  Brightman  v.  Reeves,  21  Tex.  70; 
lb.  429,  445  ;  Whitteker  v.  Charleston  Goldsmidt  v.  First  Metlio;list  Church, 
Gas  Co.,  16  W.  Va.  717;  First  Nat.  25  Minn.  202;  5.  C.  6  Rep.  435. 
Bank  of  AVelUbiirg  v.  Kiniberlands,  ^  Union  Trust  Co.  v.  Rigdon,  93  111. 
lb.  555;  Third  Nat.  Bank  v.  Ilarri-  458;  S.  C.  9  Cent.  L.J.  -486;  Bright- 
son,  3  McCrary,  316.  man   v.   Reeves,  supra;    Uoldsniidt  v. 

2  Per    Woodruff,  J.,   in    Nelson  v.  First  Metliodist  Ciiurch,  .s'7>ra  ;  Spar- 
Wellington,  supra.  hawk  v.  Drexel,  12  N.  Bank,  R.  450. 

485 


§  652.]         REMEDIES  UPON  PLEDGES   OF  NEGOTIABLE  PAPER. 

amount  of  the  collateral  notes.  The  question  presented  was, 
therefore,  whether  an  arrangement  made  between  the  pledgee  of 
past-due  negotiable  paper  and  the  maker  of  such  paper,  whereby 
he  transfers  such  paper  to  the  maker  for  less  than  its  face,  and 
for  an  amount  precisely  sufficient  to  pay  the  principal  debt,  is  a 
sale  within  the  meaning  of  the  power  conferred.  It  is  certain 
that  this  could  not  be  done  without  the  aid  of  the  special  power  ; 
and  it  is  equally  certain  that  such  an  arrangement  was  not  within 
the  scope  of  the  power  given.  The  Supreme  Court  of  Illinois^ 
so  deciding,  say  :  "  The  intention  of  the  parties  to  the  contract  is 
the  real  point  of  inquiry.  When  the  pledgor  authorized  the  trust 
company  to  sell  the  securities  at  public  or  private  sale,  what  was 
understood  and  intended  by  the  parties  ?  Was  not  an  ordinary 
sale  and  purchase  in  their  minds,  —  a  contract  whereby  the  seller 
parted  with  property  and  title,  and  the  buyer  obtained  property 
and  the  title  thereto?  Can  we  suppose  they  contemplated  a 
transfer  whereby  the  property  would  be  destroyed  and  the  title 
extinguished  ?  If  the  pledgor  had  intended  a  transaction  such  as 
is  here  involved,  would  he  not  have  used  languao^e  such  as  is  used 
in  the  books  or  by  the  courts,  or  other  apt  language,  to  designate 
such  transaction  ?  Would  he  not  have  given  authority  to  com- 
promise or  surrender  the  securities  ?  Is  it  not  a  latitudinarian, 
if  not  a  strained,  enforced  construction,  to  call  the  ti*ansaction 
here  a  sale?  In  its  ordinary  sense  and  according  to  the  common 
use  of  language,  as  also  in  the  strict  and  proper  acceptation  of 
the  word,  a  sale  is  not  understood  as  designating  a  transfer  such 
as  this.  Again,  the  power  under  consideration  is  in  derogation 
of  common-law  duties,  and  wipes  out  wise  and  equitable  safe- 
guards interposed  by  that  law  for  the  protection  of  the  pledgor, 
and  relieves  the  pledgee  from  just  duties  imposed  upon  him; 
and  which  safeguards  and  duties  are  intended  to  prevent  fraud 
and  a  breach  of  the  trust  imposed."  The  court  furthermore  held 
irrelevant  and  inadmissible  evidence  that  the  trust  company 
made  reasonable  efforts  to  sell  the  notes  and  failed  to  find  a  pur- 
chaser, and  that  the  sale  and  transfer  to  the  maker  of  the  notes 
was  in  fact  without  any  collusion  or  actual  fraud,  and  for  the 
best  price  that  could  be  obtained  for  them.  An  offer  to  show 
that  the  maker  of  the  collateral  paper  gave  other  paper  to  the 
debtor  for  no  value  received,  or  that  he  had  other  claims  against 

1  Union    Trust   Co.  v.  Rigdon,   93  111.  458 ;  5.  C.  9  Cent.  L.  J.  486. 
486 


COLLATERAL  PAPER  CANNOT  BE  ENFORCED  BY  SALE.     [§§  653,  654. 

the  debtor,  was  also  disallowed ;  inasmuch  as  this  was  not  an 
offer  to  prove  tliat  these  particular  notes  were  accommodation 
paper,  or  that  the  maker  had  a  legal  defence  to  them.  The  pre- 
sumption of  law  is  that  the  notes  were  given  for  a  good  and 
valuable  consideration,  and  it  is  also  the  presumption  that  the 
maker  was  solvent;  and,  therefore,  the  measure  of  damages  in  a 
suit  by  the  debtor  against  the  trust  company  was  the  amount 
due  upon  the  notes,  less  the  amount  paid  on  them. 

653.  A  promissory  note  may  be  sold  by  a  pledgee  under  a 
power  of  sale  conferred  upon  him,  and  such  sale  made  in  good 
faith  to  one  capable  of  buying,  will  pass  the  title  to  the  note 
beyond  the  pleilgor's  reach,  although  it  be  sold  for  less  than  the 
sum  due  upon  it.^  If,  however,  the  maker  of  the  pledged  note 
negotiates  with  the  pledgee  for  its  purchase  for  the  amount  due 
the  latter  upon  the  principal  debt,  which  is  much  less  than  the 
face  of  the  pledged  note,  and  the  maker  is  informed  of  the  time 
of  the  sale,  while  the  pledgor  is  not,  and  the  maker  purchases 
the  note  at  a  formal  public  sale,  this  will  not  be  regarded  as  such 
a  sale  as  the  law  requires,  but  rather  as  a  compromise  between 
the  pledgee  and  the  maker  of  the  note.^ 

But  if  a  promissory  note  be  pledged  with  the  agreement,  that 
if  the  debt  for  which  the  note  is  pledged  be  not  paid  at  maturity, 
the  pledgee  may  make  the  money  out  of  it  in  the  best  way  he 
can,  and  that  he  may  sell  the  note  for  that  purpose,  he  is  not 
authorized  to  sell  it  without  notice  to  the  debtor  to  redeem,  and 
of  the  time  and  place  of  sale.  A  notice  after  maturity  of  the 
debt,  that  if  it  is  not  paid  within  a  specified  time,  the  pledgee 
will  make  the  best  disposition  he  can  of  the  pledged  note,  either 
by  public  or  private  sale,  is  not  sufficient.^ 

654.  Yet,  contrary  to  the  prevailing  and  better  rule,  there 
are  authorities  which  hold    that  commercial   paper   pledged   as 

^  Zimpleman  y.  Vcedor,  98  111.  613.  merely  given,  the  power  will  be  con- 

2  Zimplenan  v.  Vceder,  supra.  striied  to  be  such  a  power  as  exists  in 

'  Goldginiilt     I'.    First     Methodist  respect  to  pledges  generally,  and  must 

Church,  25  Minn.  202,  205.     Per  Gil-  be   exercised   in   the   same   way.      In 

fillan,  C.  J.    "  It  was  competent  for  the  respect  to  pledges  generally,  tiie  power 

parties  to  agree  how  the  sale  shoidd  can  be  exercised  only  upon  reasonable 

be  made;  hut  witliout  any  such  agree-  notice  to  the  debtor  to  redeem,  and  of 

ment,  and  where  the  power  to  sell  is  the  time  and  place  of  sale." 

487 


§  655.]        REMEDIES   UPON   PLEDGES   OF   NEGOTIABLE  PAPER. 

collateral  security  may  be  sold  after  its  maturity  in  the  same 
manner  that  any  other  pledge  may  be  sold.i  The  Supreme 
Court  of  Rhode  Island,  deciding  to  this  effect,  say  .-^  ''It  may  be 
that,  in  the  absence  of  any  express  authority,  no  authority  should 
be  implied  to  sell  the  paper  before  it  matures  ;  but  must  we  hold 
that  no  authority  can  be  implied  to  sell  the  paper  after  it  matures 
if  unpaid,  thus  obliging  the  pledgee  to  involve  himself  in  a  law- 
suit, and  possibly  in  several  lawsuits,  if  he  would  be  indemnified 
out  of  the  paper  ?  We  think  not.  Tlie  general  rule  is,  that 
the  pledgee  of  personal  property  has  authority  to  sell  in  case  the 
pledgor  makes  default,  and  the  rule  should  have  no  exceptions 
which  are  not  based  on  good  reasons.  It  may  be  a  reasonable 
exception  to  the  rule  that  the  pledgee  of  commercial  paper  soon 
to  mature  should  not  sell  it  immediately  upon  the  pledgor's  de- 
fault, but  should  wait  for  it  to  mature,  and  then  present  it  for 
payment.  It  is  not  probable  that  a  court  of  equity,  if  asked  to 
sanction  the  sale  of  such  paper,  before  it  matured,  for  the  benefit 
of  the  pledgee,  would  refuse  the  request;  but  if  the  same  request 
were  made  after  the  paper  had  matured,  and  payment  thereof 
had  been  refused,  we  are  inclined  to  think  the  request  would  be 
deemed  reasonable,  and  would  be  granted.  We  see  no  good 
reason  for  requiring  that  the  pledgee  should  be  at  the  expense  of 
a  suit  in  equity  to  authorize  a  sale,  if  a  sale  is  to  be  had,  except 
it  be  for  the  protection  of  the  pledgor ;  and  the  pledgor,  if  duly 
notified,  can  protect  himself,  provided  the  sale  is  made  in  a 
proper  place  and  at  public  auction." 

655.  Sale  under  Decree  in  Equity.  —  In  California  it  is  held 
that,  under  special  circumstances,  a  pledgee  of  negotiable  paper 
may  resort  to  a  court  of  equity  for  a  sale  of  the  security,  and 
may  foreclose  the  pledge  in  the  same  manner  and  with  like  effect 
as  if  the  transaction  were  a  mortgage ;  and  it  is  rather  intimated 
that  the  same  rule  would  apply  in  case  of  an  ordinary  pledge  of 
such  paper.3  The  fact  that  the  maker  of  the  paper  pledged 
resides  in  a  remote  country,  or  in  a  different  state,  and  that  it 
does  not  appear  that  he  has  any  property  subject  to  seizure  and 

1  Davis   V.  Funk,  39  Pa.  St.  243;         2  Potter  v.  Thompson,  10  R.  I.  1,  8. 
Richards  v.  Davis,  5  Clark  (Pa.  Law         «  Donohoe  r.  Gamble,  38  Cal.  340. 
J.  Rep.),  471;  Brightman  v.  Reeves, 
21  Tex.  70. 

488 


COLLATERAL  PAPER  CANNOT  BE  ENFORCED  BY  SALE.     [§§  656,  657. 

sale  within  tlie  jurisdiction  of  the  former,  is  at  any  rate  sufficient 
to  autliorize  the  holder  of  the  pledge  to  resort  to  a  court  of 
equity  for  a  foreclosure  and  sale.  It  would  be  a  hardship  upon 
the  pledgee  to  be  forced  to  attempt  the  collection  of  tlie  paper 
under  such  circumstances,  and  a  burden  upon  him  which  could' 
not  have  been  within  the  contemplation  of  the  parties  to  the  con- 
tract. The  pledgee,  instead,  being  forced  to  incur  the  trouble, 
expense,  and  hazard  of  pursuing  the  maker  of  the  paper  pledged 
through  the  courts  of  a  foreign  country  or  state,  is  allowed  to  go 
into  equity  for  a  foreclosure  and  sale  of  the  note  for  whatever 
it  will  bring  in  the  market  at  a  judicial  sale.  The  pledgor  must 
necessarily  have  due  notice  of  the  proceeding,  and  if  the  security 
brings  an  inadequate  price  at  the  sale,  it  is  his  misfortune,  which 
he  might  have  guarded  against  by  a  proper  stipulation  in  the 
contract.^ 

656.  In  Texas  a  creditor  holding  negotiable  paper  as  col- 
lateral security,  may  collect  it  at  maturity,  and  apply  the  pro- 
ceeds to  the  payment  of  the  debt,  even  after  the  death  of  the 
debtor;  although,  in  this  state,  a  mortgagee  or  lien-holder  is  re- 
quired to  prove  his  claim  against  the  estate  of  the  deceased,  and 
ask  the  aid  of  the  Probate  Court  to  enforce  the  lien.  The  pro- 
bate laws  suspend  the  right  of  a  mortgagee  or  lien-holder  to  sell 
the  property  by  making  the  lien  subordinate  to  other  claims ; 
but  these  laws  do  not  apply  to  a  creditor  who  holds  negotiable 
paper  of  a  third  person  as  security,  and  thus  has  in  his  own 
hands  that  which  may  be  treated  as  so  much  money,  and  appro- 
priated to  the  payment  of  the  debt  secured.'^  If,  however,  such 
paper  prove  to  be  uncollectable,  and  the  creditor  be  driven  to 
treat  it  as  mere  personal  property,  pledged  to  secure  a  debt, 
and  to  invoke  the  aid  of  the  courts  in  enforcing  his  lien  by  sale, 
then  the  matter  might  come  within  the  reach  of  the  probate 
laws.^ 

657.  An  ordinary  mortgage  and  note,  or  bond,  cannot  be 
sold  by  the  pledgee  on  default  any  more  than  a  promissoiy  note 
alone  may  be  sold  ;  but,  of  course,  such  a  sale  may  be  made  by 

1  Donolioi;  r.  Gamble,  38  Cal.  310.  «  Iluyler    v.    Dalioney,    suj)rci,  per 

2  Iluyler  o.  Dahoiiey,  48  Tex.  234;     Gould,  J. 
Morpliy  V.  Garrett,  lb.  24  7. 

489 


§  658.]      REMEDIES   UPON   PLEDGES   OF  NEGOTIABLE  PAPER. 

force  of  an  express  agreement  by  the  pledgor,^  and  power  to 
negotiate  a  note  and  mortgage  for  tlie  purpose  of  satisfying  the 
principal  debt,  is  held  to  authorize  their  sale.^  If  a  mortgage 
be  transferred  as  collateral  security  for  an  amount  less  than  its 
face,  and  tlie  pledgee  refuse  to  foreclose  it  after  maturity,  the 
pledgor  may  maintain  an  action  of  foreclosure.  He  has  an  in- 
terest in  the  mortgage,  and  is  not  restricted  to  the  remedy  of 
tender  or  repayment.  The  pledgee  will  be  protected  in  his 
rights  in  such  foreclosure  suit  by  an  order  that  he  shall  be  first 
paid  out  of  the  fund  derived  from  the  sale  of  the  mortgaged 
property.^ 

A  non-negotiable  warrant  or  order  upon  a  town  or  city  is  sub- 
ject to  the  same  rule,  and  cannot  be  sold  by  the  pledgee,  or  a 
Court  of  Chancery  at  his  instance.     It  must  be  collected.* 

A  non  negotiable  order  upon  a  private  corporation  is  also  sub- 
ject to  the  same  rule.^ 

658.  But  a  mortgagee  of  a  note,  or  of  a  note  and  mort- 
gage, may  sell  the  security  upon  his  debtor's  default,  because, 
in  case  of  a  mortgage,  the  title  vests  absolutely  in  the  mortgagee 
upon  default,  and,  unless  restrained  by.  statute,  he  may  deal  with 
the  mortgaged  property  as  his  own  ;  he  may  sell  it  without  formal 
foreclosure.^ 

If,  therefore,  a  note  and  mortgage  be  assigned  as  security  by 
an  assignment  conditional  in  form,  and  therefore,  in  fact,  a  mort- 
gage, the  assignee  may  sell  the  note  upon  default  of  the  assignor 
in  paying  the  debt  secured,  without  being  liable  to  the  assignor 
as  for  a  conversion  of  the  note.'' 

^  Fletcher  v.   Dickinson,    7    Allen  est  in  the  pledge,  by  the  proceeding  to 

(Mass.),  23;  Morris  Canal  &  Banking  enforce  It  as  against  the  debtor  in  the 

Co.  J'.  Fi^her,  9  N.  J.  Eq,  G67,  701,  pledge."      And    see  Newport  &  Cin- 

per  Elmer,  J.  cinnatl   Bridge    Co.    v.    Douglass,  12 

2  Frak.r  i'.  Reeve,  36  Wis.  85.  Bush  (Ky.),  673. 

3  Binliiijanie  v.  Parce,  12  Hun  (N.  *  Whitteker  v.  Charleston  Gas  Co. 
Y.),  140;  Wells  v.  Wells,  53  Vt.  1,  5,  16  W.  Va.  717. 

per  Baniett,  J.  :    "  The  court  would  ^  First  Nat.  Bank  of  Wellsburg  v. 

see  to  It  that  the  rights  and  interests  Kimberlands,  16  W.  Va.  555. 

of  the  pledgee  were  protected  in  refer-  "  Jones     on      Chattel     Mortgages, 

ence  to  the  collateral,  at  the  same  time  §§    699-712. 

that  the  pledgor  was  acting  in  regard  '  Fraker  i'.  Reeve,  supra. 

to  his  own  existing  reversionary  inter- 

490 


COLLATERAL  PAPER  CANNOT  BE  ENFORCED  BY  SALE.      [§§  659,  660. 

659.  One  holding  a  mortgage  as  collateral  security  may- 
foreclose  it  upon  a  breach  of  the  condition.  If  the  foreclosure 
be  by  sale  the  pledgee  holds  the  proceeds  of  the  sale  in  place  of 
the  mortgage.  If  the  foreclosure  be  a  strict  foreclosure,  or  be 
by  writ  of  entry,  or  by  entry  and  possession,  the  pledgee  there- 
after holds  the  land  as  security  in  place  of  the  mortgage  upon  it. 
The  foreclosure  does  not  work  a  payment  of  the  priiKtipal  debt. 
In  case  the  foreclosure  has  resulted  in  giving  the  pledgee  the 
possession  and  title  to  the  land,  the  pledgor  has  the  right  to 
redeem  the  land  upon  paying  the  debt  for  which  the  pledge  was 
made,  so  far  as  this  has  not  been  paid  by  the  rents  and  profits  of 
the  land.  The  pledgee  holds  the  land  by  title  absolute  as  against 
the  mortgagor,  but  as  security  merely  as  against  the  pledgee. 
Accordingly,  where  a  mortgage  for  four  thousand  dollars  was 
assigned  as  collateral  for  a  loan  for  two  thousand  dollars,  with 
an  agreement  that  the  lender,  on  receiving  payment  of  the  mort- 
gage, would  pay  to  the  borrower  the  excess  above  the  amount  of 
the  loan,  and  there  was  no  agreement  about  foreclosure,  and  sub- 
sequently the  lender  foreclosed  the  mortgage  without  making 
the  borrower  a  party,  and  himself  purchased  the  premises  at  the 
foreclosure  sale,  for  the  amount  of  the  principal  debt,  and  after- 
wards sold  the  premises  for  five  thousand  dollars,  it  was  held 
that  the  borrower  was  entitled  to  recover  of  the  lender  the  value 
of  the  mortgage,  or  the  amount  of  its  proceeds,  less  the  amount 
of  the  principal  debt  secured.  The  equitable  interest  which  the 
borrower  retained  in  the  mortgage  attached  to  the  land  upon  the 
purchase  of  it  by  the  lender,  and  the  borrower  was  entitled  to 
the  surplus  above  the  loan  secured,  upon  the  sale  of  the  land  by 
the  lender  for  more  than  the  amount  of  his  claim.i 

660.  A  pledgee's  interest  by  foreclosure  of  the  mortgage 
becomes  a  mortgagee's  interest.  The  pledgee  beconies  a  mort- 
gagee. The  land  in  his  hands  is  affected  by  a  trust,  to  convert  it 
into  money,  and  pay  over  any  balance  of  the  proceeds  remaining 
after  payment  of  the  debt  due  from  his  debtor  to  hiui,  or,  upon 
the  debtor's  payment  of  the  debt,  to  release  and  quit-t  hum  the 
land  to  him.2     But,  in  such  case,  the  debtor  must  bring  his  bill 

1  Diilton  V.  Sinitli,  8G  N.  Y.  17G.  citing  Brown  v.  Tyhr,  8  Gi-iiy  (Mass.), 

2  Stevens  ('.  Ded ham  Inst,  for  Sav-  l.'iS;  Rlontagno  v.  Boston  &  Albany 
ings,    129    Muss,   547,  per    Soule,  J.,     11.  R.  Co.  121  Mass.  212. 

4'Jl 


§§  661-663.]      REMEDIES   UPON   PLEDGES   OF  NEGOTIABLE   PAPER. 

to  redeem  ^vitliin  twenty  years  from  the  time  that  possession  was 
obtained,  no  interest  having  been  paid  meanwhile  ;  this  being  the 
period  wliich  equity  has  adopted,  beyond  which  a  mortgagor  will 
not  be  admitted  to  redeem  without  special  cause.^ 

If  a  pledgee  holding  a  mortgage  as  collateral  security  fore- 
closes it  by  a  suit  in  equity,  to  which  he  makes  the  pledgor  a 
party,  and  the  latter  takes  no  appeal,  and  claims  no  defence,  he 
will  not  afterwards  be  allowed  any  relief  as  regards  the  mort- 
gage or  the  mortgage  note,  on  the  ground  that  he  had  suffered 
loss  through  the  negligence  of  the  pledgee  in  not  sooner  enforcing 
the  security .2 

661.  A  pledge  of  any  chose  in  action  other  than  stocks 
and  bonds  should  be  enforced  by  collection,  rather  than  by 
sale.  Tluis  a  pledge  of  a  contract  for  building  a  road  should  be 
enforced  by  collecting  the  amount  due  upon  the  contract.^ 

662.  A  pledge  of  a  savings-bank  book,  and  of  the  deposit 
represented  by  it,  would  not  ordinarily  be  sold  under  proceedings 
in  equity  ;  but  the  court,  after  the  failure  of  the  administrator  to 
pay  the  debt,  with  interest  and  costs,  within  a  time  designated, 
would  appoint  an  officer  to  receive  the  deposit,  and  make  proper 
disposition  of  it.*  And  so  a  pledgee  of  any  chose  in  action,  such 
as  a  contract  for  the  payment  of  a  sum  of  money,  is  ordinarily 
bound  to  collect  the  amount  due  and  reimburse  himself  out  of 
the  proceeds.^ 

663.  A  creditor  may  pursue  his  remedies  simultaneously 
or  successively  upon  the  principal  debt  and  upon  the  collateral 
obligation.  If  the  collateral  note  be  secured  by  mortgage,  the 
creditor  nuiy  have  his  remed}^  upon  this  also,  at  the  same  time 
with  the  personal  remedies.  And  in  like  manner  he  may  pro- 
ceed to  enforce  any  other  collateral  security  or  lien.  Thus,  a 
mechanic  or  contractor,  having  a  lien  under  the  mechanics'  lien 
law,  and  also  a  collateral  note  of  a  third  person,  to  secure  him 
for  work  done,  may  simultaneously  enforce  the  principal  debt, 
the  collateral  note,  and  the  statutory  lien  by  legal  proceedings 

1  Jon'^s  on  Mort<Taw?.  §  1144.  *  Boynton  v.  Payrow,  67  Me.  587. 

I     Wells  V.  Wells,  53  Vt.  1.  *  Gay  v.  Moss.  34  Cal.  125. 

Gay  V.  Moss,  34  Cal.  125. 
492 


SUIT   UPON   COLLATERAL   PAPER.  [§  664. 

and  suits  adapted  to  the  respective  remedies,  and  may  recover 
separate  judgments  in  each  ;  but  there  can  be  but  one  satisfac- 
tion.^ 

A  creditor  holding  colhiteral  security  may  enforce  it  by  suit, 
although  he  has  a  suit  pending  against  the  principal  debtor,  who 
claims  that  the  debt  has  been  paid.  The  collateral  security  is 
put  into  the  hands  of  the  creditor,  to  enable  him  to  make  his 
claim  out  of  it.^  If,  before  he  has  done  so,  the  principal  debtor 
discharges  the  debt,  then  the  collateral  must  be  surrendered,  or 
any  suit  pending  upon  it  must  be  placed  within  the  control  of  the 
debtor.  Nothing  short  of  satisfaction  of  the  original  debt  will  pre- 
vent a  recovery  by  the  creditor  upon  the  collateral ;  ^  and  even 
after  such  satisfaction,  if  this  occur  after  the  commencement  of 
suit  upon  the  collateral,  the  pledgor  may  continue  the  suit  and 
obtain  judgment  for  his  own  benefit.  But  after  the  principal  debt 
has  been  satisfied,  the  pledgee  cannot  continue  the  suit  against 
the  maker  of  the  collateral  note  against  the  will  of  the  pledgor, 
or  after  the  maker  of  the  collateral  note  has  paid  it  to  the 
pledgor  ;  though  the  pledgee  would  be  entitled  to  be  paid  the 
costs  of  suit  commenced  upon  the  collateral  note.* 

II.  Suit  upon  Collateral  Paper. 

664.  No  demand  upon  the  pledgor  is  necessary  before 
bringing  suit  to  collect  negotiable  paper  pledged  as  collat- 
eral security,  when  the  debt  to  secure  which  the  pledge  was 
given  is  payable  at  a  time  certain.^  If  the  payee  of  a  promissory 
note  deliver  it  before  maturity  to  a  creditor  as  collateral  security, 
in  such  a  form  that  the  pledgee  has  the  legal  title  to  it,  —  as  where 
it  is  a  note  payable  to  bearer,  or  if  payable  to  order  is  regularly 
indorsed, — the  creditor  may,  upon  its  maturity,  maintain  an  action 
against  the  maker  without  previously  demanding  from  the  pledgor 
repayment' of  the  loan.  The  bearer  or  indorsee  of  the  note  is  en- 
titled to  collect  it.^    It  does  not  matter  that  the  debt  for  which  the 

1  Gambling;?;.  Haij^lit,  59  N.Y.  354;  the  collateral  Barr  y.  Kane,  32  Lid. 
and  see  Jcrvis  v.  Sinitli,  1  Slieldon  (N.     416. 

Y.),  189,  195;   Plant's  Manufacturing  ^  Lazier  v.  Nevin,  3  W.  Va.  622  ; 

Co.  V.  Falvcy,  20  Wis.  200.  Smith  v.  Stront,  63  Me.  205. 

2  Chaniborsburg  Ins.  Co.  r.  Sinitli,  *  Key  v.  Fielding,  32  Ark.  56. 
11  Pa.  St.  120.     Unless  there  be  an  ^  White  v.  Phelps,  14  Minn.  27. 
agreement  to  use  every  legal  means  to  ^  Paine  v.  Furnas,  117  Mass.  290; 
collect   the  debt   before  resorting  to  Lindsay  u.  Chase,  104  Mass.  253;  Nel- 

493 


§  665.]         REMEDIES   UPON   PLEDGES   OF   NEGOTIABLE   PAPER. 

note  is  held  as  collateral  is  not  due  when  suit  is  brought  upon 
the  collateral  note.^  Having  the  legal  title,  the  holder  of  the 
collateral  note  may  maintain  an  action  upon  it  when  it  becomes 
due,  without  averring  or  showing  that  the  indebtedness  secured 
by  the  note  has  not  been  paid.^  He  is  entitled  to  collect  the  col- 
lateral note  when  it  falls  due.^  So  long  as  the  creditor  holds  the 
collateral  note  in  pledge  he  has  the  right  to  collect  it  on  its  ma- 
turity, and  the  creditor  is  not  precluded  from  so  collecting  it  by  a 
receipt  for  the  collateral  note  given  to  the  debtor,  whereby  the 
creditor  agrees  to  return  the  note  upon  the  payment  of  the  debt 
for  which  he  took  it  as  security,  and  to  use  all  legal  means  to  col- 
lect it  if  so  directed  by  his  debtor.  The  creditor  in  such  case 
need  not  wait  for  a  direction  from  the  debtor  to  collect.^  He 
may  collect  the  full  amount  of  the  note  or  bond  pledged,  and 
not  merely  the  amount  of  the  debt  secured,  subject,  howevei',  to 
the  liability  to  account  to  the  debtor  for  any  surplus.^  Although 
the  principal  debt  be  paid  pending  a  suit  upon  the  collaterals, 
such  suit  may  properly  be  continued  to  judgment  by  the  creditor 
or  in  his  name.  If  he  afterwards  collects  such  collaterals  he 
will  hold  the  amount  so  collected  as  trustee  for  the  benefit  of  the 
debtor.^ 

A  bank  which  has  discounted  a  note  for  a  depositor,  receiving 
as  collateral  the  notes  of  other  persons,  may  enforce  the  latter 
notes,  although  the  bank  has  had  on  deposit  moneys  belonging  to 
the  debtor,  and  has  made  no  effort  to  collect  the  demand  from 
such  deposits.'^ 

665.  The  pledgee  may  enforce  payment  of  collateral 
paper  upon  its  maturity,  although  the  principal  debt  has  not 

son  V.  Edwards,  40  Barb.  (N.  Y.)  279;  AVbeeler  v.  Newbould,  16  N.  Y.  392  ; 

*S.  C.  5  Bosw.  178;  Moody?;.  Andrews,  Kelson  r.  Eaton,  26  N.  Y.  410;  Com- 

39  Superior  Ct.  302 ;  Louisiana  State  stock  v.  Smitb,  23  Me.  202. 

Bank  v.  Gaiennie,  21  La.  Ann.  555  ;  •*  Bay  r.  Gunn,  1  Denio  (N.  Y.),  108. 

Dix  V.  Tully,  14  La.  Ann.  456 ;   Du-  ^  ^\^q  ^^  Southern  Pa.  Iron  &  R.  R. 

casse  V.  McKenna,  28  La.  Ann.  419  ;  Co.  9  Phila.  294  ;  Hilton  v.  Waring,  7 

Third  Nat.  Bank  v.  Harrison  (C.  C.  Wis.  492. 

Mo.  1882),  10  Fed.  Rep.  243;  Hilton  ^  Houser   v.  Houser,   43   Ga.  415; 

i;.  Waring,  7  AVis.  492.  and  see  Overstreet  v.  Nunn,  36  Ala. 

1  Jones  r.  Hawkins,  17  Ind.  550.  666. 

2  McCarty  i-.  Clark,  10  Iowa,  588.  ^  Third   Nat.  Bank  v.  Harrison,  3 
8  Farwell  v.  Importers'  &  Traders'  McCrary,  316. 

Nat.  Bank,  4  7  N.  Y.  Superior  Ct.  409; 
494 


SUIT   UPON   COLLATERAL   PAPER.  [§  666. 

then  matured.  Yet  while  he  is  entitled  to  collect  a  collateral 
note  upon  its  maturity,  he  has  no  right  to  apply  the  proceeds  to 
the  payment  of  his  loan  until  after  default  in  the  payment  of 
that.  The  money  when  received  is  a  substitute  for  the  note,  and 
is  to  be  held  upon  the  same  terms,  and  subject  to  the  same  rights 
and  duties  as  the  note.^  If  the  debt  secured  is  payable  at  a 
definite  time,  no  application  of  the  proceeds  of  a  collateral  note 
can  be  made  until  that  time  arrives.  If  the  debt  secured  is  pay- 
able upon  demand,  a  demand  upon  the  debtor  must  be  made  be- 
fore applying  the  proceeds  of  a  collateral  note.^ 

A  loan  upon  call  was  obtained  by  a  broker  from  a  bank  upon 
a  pledge  of  several  promissory  notes  for  an  amount  exceeding 
the  amount  of  the  loan.  One  of  these  notes  had  been  delivered 
to  the  broker  by  the  maker  of  it,  to  be  sold  in  the  market,  and 
nothing  was  ever  paid  upon  it  to  the  maker.  The  maker  paid 
the  note  at  maturity  to  the  bank,  and  gave  notice  to  it  of  the 
circumstances  under  which  the  note  had  been  given,  and  of  the 
fact  that  he  had  never  received  any  of  the  proceeds  of  the  note. 
He  also  claimed  of  the  bank,  before  it  had  called  upon  the 
pledgor  to  redeem,  and  gained  any  right  of  appropriation  of  the 
collections  made,  any  surplus  that  might  remain  from  the  pro- 
ceeds of  the  notes  pledged  after  payment  of  the  loan  made 
thereon.  The  bank  collected  all  the  notes,  and  had  surplus 
above  the  amount  of  the  loan.  In  an  action  by  the  maker 
asainst  the  bank  it  was  held  that  he  was  entitled  to  recover  so 
much  of  the  proceeds  of  his  note  as  was  not,  after  the  application 
of  the  proceeds  of  the  other  notes,  required  to  satisfy  the  loan.^ 
The  bank  had  no  right  to  make  an  application  of  the  proceeds 
of  this  note  to  the  payment  of  the  loan,  before  a  time  when  a 
sufficient  amount  had  been  collected  from  the  other  notes  to  re- 
pay the  loan,  and  therefore  it  became  a  quasi  trustee  for  the 
maker  of  this  note  as  to  proceeds  of  it. 

666.  If  the  collateral  note  be  pledged  with  the  under- 
standing that  it  is  not  to  be  resorted  to  unless  the  maker  of 

1  Farwell  v.  Importers'  &  Traders'  ^  Lewis  v.  Varnum,  12  Abb.  (N.  Y.) 

Nat.  Bank,  47  X.  Y.  Superior  Ct.  409;  Pr.   305;    Wilson   v.  Little,   2  N.   Y. 

Garlick  v.  James,  12  Johns.   (N.  Y.)  443. 

146,   148;   Bl)(lenburgb  v.  Thayer,  3  »  Farwell  v.  Importers' &  Traders' 

Keyes,  N.  Y.  293.  Nat.  Bank,  47  N.  Y.  Superior  Ct.  409. 

495 


§§  667-669.]   REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

the  principal  note  fails  to  pay  that  at  maturity,  then  a  suit  upon 
the  collateral  note  cannot  be  maintained  until  both  notes  are 
due.i 

667.  But  a  pledgee  is  not  bound  to  collect  the  collateral 
security  upon  its  maturity,  before  the  maturity  of  the  principal 
debt,  except  upon  the  request  of  the  pledgor,  or  in  pursuance  of 
an  express  contract  to  do  so.  Even  where  a  creditor,  receiving 
as  collateral  security  the  note  of  a  third  person,  promised  to  use 
all  reasonable  means  to  collect  it  and  account  for  it,  it  was  held 
that  by  the  subsequent  payment  of  the  principal  debt  he  was 
absolved  from  all  further  obligation  to  collect  the  note,  and  was 
only  bound  to  return  it  to  the  owner.^ 

A  provision  in  an  assignment  of  a  judgment  as  collateral 
security,  that  if  the  debt  secured  be  not  paid  at  maturity,  the 
creditor  might  sell  the  judgment  at  public  sale,  does  not  impose 
any  obligation  upon  him  to  take  stej)s  for  the  collection  of  the 
judgment,  before  maturity  of  the  principal  debt.^ 

668.  A  pledgee  of  negotiable  bonds  is  entitled  to  demand 
payment  of  coupons  as  they  fall  due,  whether  this  be  before 
or  after  the  maturity  of  the  debt  which  the  bonds  were  pledged 
to  secure.  Tlie  bonds  and  the  coupons  are  together  pledged  for 
the  payment  of  the  debt.  The  fact  that  the  debt  is  not  due  when 
the  coupons  become  payable,  does  not  relieve  them  any  more  than 
the  bonds  themselves,  from  the  effect  of  the  hypothecation.^ 

One  who  holds  the  bonds  of  a  railroad  company  as  collateral 
security  for  its  debts,  is  entitled  to  enforce  payment  thereof,  so 
long  as  the  debts  for  which  they  were  pledged  remain  unpaid.^ 

669.  A  pledgee  may  collect  the  collateral  note  in  his  own 
name,  if  it  was  properly  indorsed  to  him,  either  specially  or  in 
blank.^      Such  indorsement  gives  him  the  legal  title.      If  the 

1  Moore  v.  Miller,  7  Oregon,  486.  themselves   fell  due  before   the  debt 

2  Overlook  v.  Hills,  8  Me.  383.  secured  by  the  pledge  of  the  bonds, 

3  Bast  V.  First  Nat.  Bank  of  Ash-  their  hypothecation  was  without  any 
land,  101  U.  S.  93;  S.  C.  19  Am.  Law  effect  whatever."     Per  Woods,  J. 
Reg.  (N.  S.)  30G.  ^  Allen  v.  Dallas  &  Wichita  R.  R. 

*  Warner  v.  Rising  Fawn  Iron  Co.     Co.  3  Woods,  316. 
3  Woods,  514,  523.     "  To  hold  other-         «  Bowman  v.  Wood,  15  Mass.  534; 
wise  would  be  to  hold  that  if  the  bonds     Lobdell   v.    Merchants'    &    Manufac- 

496 


SUIT   UPON   COLLATEEAL   PAPER.  [§  670. 

note  be  pledged  without  indorsement,  the  pledgee  acquires  the 
same  riglits  that  the  assignee  of  a  note  not  negotiable  has  ;  that 
is,  he  may  bring  suit  upon  it  in  the  name  of  the  payee.^  An 
indorsement  sufficient  to  pass  the  legal  title  to  the  note  may, 
however,  be  made  on  a  separate  paper.'-^ 

The  pledgee  may  sue  collateral  notes  in  his  own  name, 
although  the  indorsement  to  him  be  in  the  form,  "  Pay  to  A.  B. 
(the  pledgee)  for  account  of  C.  D."  (the  pledgor).  Such  an 
indorsement  is  not  inconsistent  with  the  lien  of  the  pledgee  and 
the  right  of  the  latter  to  collect  the  notes  and  apply  them  to 
the  account  of  the  pledgor  by  discharging  the  debt  they  were 
pledged  to  secure.  The  special  indorsement  expresses  no  more 
than  the  understanding  of  the  parties  in  every  case  of  a  pledge 
of  a  note.^ 

Under  codes  which  dispense  with  the  rule  requiring  the  as- 
signee of  a  chose  in  action  to  sue  in  the  name  of  the  assignor,  a 
promissory  note  pledged  by  the  payee  without  indorsement  may 
be  collected  by  the  pledgee  upon  default  by  an  action  at  law  in 
his  own  name.  There  is  nothing  in  the  nature  of  such  a  pledge 
which  indicates  an  intention  to  restrict  the  pledgee  to  a  proceed- 
ing in  chancery.* 

670.  If  the  pledgee  is  not  invested  with  the  legal  title 
of  the  collateral,  so  as  to  be  entitled  to  maintain  an  action 
upon  it  in  his  own  name,  as  where  the  paper  is  not  negotiable 
in  form,  or  where  it  has  not  been  formally  indorsed  to  him,  it  is 
his  right  to  maintain  a  suit  in  the  name  of  the  pledgor  or  other 
legal  owner  of  it.  The  delivery  or  transfer  of  the  collateral  to 
the  pledgee  by  the  legal  owner  implies  authority  to  use  the  name 
of  such  legal  owner,  if  necessary,  for  its  collection.    The  pledgee 

turers' Bank,  33  Mich.  408;  Hilton  u.  8  kelson    v.   Wellington,    5    Bosw. 

Waring,  7  Wis.  492;  Curtis  v.  Molir,  (N.  Y.)  178. 

18  lb.  615;  Kinney  v.  Kruse,  28  Wis.  *  White  v.  Phelps,  14  Minn.  27. 

183;    Tarbell  v.   Sturtevant,    26    Vt.  In  Louisiana  it  is  well  settled  that 

513;  Jones  v.  Hawkins,  17  Ind.  550;  the  pledgee  has  the  right  to  sue  the 

Houser  v.  Ilouser,  43  Ga.  415.  pledged  note  in  his  own  name.     Bank 

1  Jones  V.  Witter,  13  Mass.  304;  of  Lafayette  v.  Bniff,  33  La.  Ann. 
and  see  White  v.  Phelps,  14  Minn.  624  ;  Ducasse  v.  McKenna,  28  La. 
27,  33.  Ann.  419. 

2  Crosby  v.  Roub,  16  Wis.  616. 

32  497 


§§  671-674.]       REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

is  not  entitled,  by  reason  of  not  having  the  legal  title  himself, 
to  maintain  a  bill  in  equity  to  have  the  collateral  soltl.i 

671.  The  holder  of  collateral  paper  may  sue  and  recover 
upon  it  of  the  maker,  although  the  pledgor  has  fully  paid 
the  debt  for  which  the  paper  was  pledged  as  secmity,  unless  the 
maker  of  the  collateral  paper  is  thereby  deprived  of  some  equi- 
table defence  which  he  might  have  against  the  payee.^  The  fact 
that  the  right  of  property  in  the  collateral  paper  has  pissed  back 
to  the  payee,  by  his  payment  of  the  debt  for  which  he  pledged 
such  paper  as  security,  does  not  prevent  the  holder  of  it  from 
maintaining  an  action  upon  it  in  his  own  name,  so  long  as  the 
maker  remains  liable.  Whether  such  holder  sue  for  himself,  or 
as  trustee  for  the  payee,  is  immaterial. 

672.  If  the  maker  of  a  collateral  note  pay  it  to  the 
pledgor,  with  knowledge  that  the  payee  has  transferred  it  as 
collateral  security,  his  payment  is  a  nullity  as  to  the  pledgee, 
who  may  collect  it  notwithstanding  such  payment.^ 

673.  The  pledgee  may  enforce  payment  of  accommoda- 
tion paper  held  by  him  as  collateral  security,  and  the  maker 
has  no  right  to  have  the  collection  of  such  paper  enjoined  until 
the  creditor  holding  the  same  shall  first  exhaust  other  securities 
for  the  same  debt  placed  with  him  b}'  his  debtor,  even  though 
the  making  of  such  paper  was  procured  by  fraudulent  statements. 
The  principle  of  equity,  that  where  a  party  has  a  lien  on  two 
funds,  out  of  either  of  which  his  debt  can  be  paid,  and  another 
has  a  lien  on  one  only  of  the  funds  for  his  debt,  the  latter  has  a 
right  to  compel  the  former  to  resort  to  the  other  fund  in  the  first 
instance  for  satisfaction  of  his  debt,  is  applicable  to  sureties  only. 
And  the  maker  of  such  accommodation  paper  is  in  no  sense  a 
surety.     He  is  a  principal  debtor  on  the  uote.^ 

674.  The  holder  of  the  collateral  paper  may  recover  the 
full  amount  due  upon  it  although  this  exceed  the  debt  for 

1  Whitteker  v.  Charleston  Gas  Co.  3  Fennell  v.  McGowan,  58  Miss. 
16W.  Va.  717.  261. 

a  Logan  y.  Cassell,  88  Pa.  St.  288.  ■*  Prout     v.    Lomer,    79    III.    331; 

Cronise  v.  Kellogg,  20  111.  11. 
498 


SUIT   UPON   COLLATERAL  PAPER.  [§§  675,  676. 

"Which  it  was  pledged,  unless  it  is  held  subject  to  equitable  de- 
fences which  the  maker  may  have  against  his  payee.^  These 
defences  may  be  such  as  existed  when  the  paper  was  taken  as 
collateral,  as  where  the  paper  was  overdue  when  it  was  so  taken ; 
or  they  may  be  such  as  have  arisen  from  subsequent  transactions 
between  the  parties  ;  as,  for  instance,  when  the  pledgor  has  paid 
the  debt  for  which  the  pledge  was  made,  so  that  the  holder  of 
the  collateral,  in  a  subsequent  suit  upon  it,  must  be  regarded  as 
acting  as  a  trustee  for  the  payee  and  as  having  only  his  rights.^ 

675.  But  if  the  paper  be  subject  to  equities  in  favor  of  the 
maker  against  the  original  payee,  the  holder  can  recover  in  a  suit 
upon  it  no  more  than  the  principal  debt  actually  due  liim.^ 

In  a  suit  upon  collateral  paper  which  is  subject  to  such  de- 
fences as  the  maker  could  set  up  against  the  payee,  as,  for  in- 
stance, when  the  paper  has  been  taken  as  collateral  after  its 
maturity,  the  holder  can  of  course  recover  only  the  amount  which 
the  payee  himself  could  recover.* 

If  a  corporation  pledge  its  own  bonds  as  security  for  an  in- 
debtedness of  its  own  in  a  smaller  amount  than  the  par  value  of 
the  bonds,  the  creditor,  in  a  suit  against  the  company,  can  have 
judgment  for  only  the  amount  of  the  debt,  and  not  for  the  full 
amount  of  the  bonds  ;  although  a  purchaser  of  such  bonds  from 
the  pledgee  might  be  entitled  to  judgment  upon  them  for  their 
full  amount.^ 

And  so  if  the  maker  of  the  collateral  paper  has  any  other  good 
defence  against  the  payee  who  has  pledged  it,  the  pledgee  can  col- 
lect no  more  than  the  amount  of  the  debt  secured.^ 

676.  A  pledgee  of  accommodation  paper  can  recover  only 

1  Tooke  r.  Newman,  75  111.  215.  557;  Wliife   v.  Phelps,   14  Minn.  27 

2  Logan  V.  Casseil,  88  Pa.  St.  288.       Lobdell  v.  Merchants'  Bank,  33  Mich. 
•  Roche  i\  Ladd,  1  Allen  (Mass.),     408;  Louisiana  State  Bank  r.  Gaien- 

436;    Williams    v.    Cheney,    3     Gray  nie,  21  La.  Ann.  555  ;  Allaire  i;.  liar ts- 

(Mass.),   215  ;    Stod<lard  v.   Kiml)all,  home,  1  Zab.  (N.J.)  GG5. 

6  Cu.^i.  (Mass.)  4G9;  S.  C.  4  lb.  004;  *  Kelly  v.  Ferguson,  4G  How.  (N. 

Valette   v.  Mason,  1    Ind.  288;   Grant  Y.)  Pr.  411. 

V.  Kidwell,   30  Mo.  455;  Williams  v.  ^  Jcsup  v.  City  Bank  of  llacine,  14 

Smith,  2  Hill  (N.  Y.),  301 ;  Tarbell  v.  Wis.  331. 

Sturtevant,  2G  Vt.  513;  Mayo  v.  Moore,  '  I.,acruix  v.  Derbigny,  18  La.  Ann. 

28  111.  428;  Eacter  c,  Min'ard,   26   lb.  27. 

494;  Gammon  v.  llu.'^e,  !)  Bradw.  (111.) 

499 


§  677.]  EEMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

the  amount  of  the  debt  secured  to  him  by  such  pledge.  Upon 
receiving  payment  in  full  for  the  debt  secured,  the  pledgee  should 
surrender  the  collateral  note  to  the  accommodation  maker ; 
though,  as  a  matter  of  prudence,  he  should  obtain  the  pledgor's 
directions  for  such  surrender.^  Thus,  if  accommodation  paper  be 
indorsed  as  security  for  a  preexisting  debt  of  a  less  amount,  the 
indorsee  is  a  holder  for  value  in  his  own  right  only  to  the 
amount  of  the  debt  due  him  ;  and  unless  it  appear  that  he  is 
accountable  to  some  third  person  for  the  surplus,  he  can  recover 
no  more  than  the  debt  for  which  he  is  a  bond  fide  holder  for 
value.2 

677.  A  pledgee  of  negotiable  paper  has  no  better  title  to 
the  proceeds  collected  than  he  had  to  the  paper  itself.  Thus 
the  makers  of  a  note  payable  to  their  own  order  indorsed  and  de- 
livered it  to  a  firm  of  note  brokers  to  sell  it  at  a  limited  discount. 
The  brokers,  without  the  knowledge  or  consent  of  the  makers  of 
the  note,  delivered  it  with  others  belonging  to  themselves  to  a  bank 
as  collateral  security  for  a  call-loan.  Before  the  maturity  of  the 
note  tlie  makers  notified  the  bank  of  their  riglits  respecting  the 
note  ;  and  afterwards  paid  it  at  maturity.  At  that  time  the  bank 
had  not  received  enough  from  the  other  collaterals  to  pay  the 
loan,  but  afterwards  did  receive  more  than  enough  for  that  pur- 
pose. In  an  action  by  the  makers  of  the  note  against  the  bank 
for  an  accounting,  and  to  determine  their  respective  rights  to  the 
proceeds  of  the  note,  and  to  compel  payment  of  any  portion  not 
necessarjr  to  satisfy  the  lien  of  the  bank,  it  was  held  that  the 
bank,  having  received  the  note  from  the  ostensible  owners  in  ig- 
norance of  the  plaintiffs'  rights,  could  hold  it  as  security,  yet  the 
right  of  property  did  not  pass,  but  remained  in  the  plaintiffs^ 
subject  to  the  lien  of  the  pledgee  ;  and  that  while  the  latter  had 
the  right  to  collect  the  note  at  maturity,  as  the  loan  had  not 
been  paid,  the  money  collected  remained  as  a  substitute  for  the 
note,  and  subject  to  the  equities  of  the  makers,  just  as  if  the  note 
had  remained  uncollected.  After  the  makers  of  the  note  had 
given  notice  to  the  bank  of  their  rights,  they  stood  as  mere  sure- 
ties for  the  loan  to  the  extent  of  their  note,  and  could  compel  the 
bank  to  apply  the  proceeds  of  the  securities  belonging  to  the 

1  Teutonia  Nat.  Bank  v.  Loeb,  2  ^  Stoddard  v.  Kimball,  6  Cush. 
La.  Ann.  HO.  (Mass.)    469;    Fibher   v.   Fisher,    98 

600  Mass.  303. 


SUIT   UPON   COLLATERAL   PAPER.  [§§  678-680. 

pledgors  to  the  payment  of  the  loan  before  resorting  to  the  plain- 
tiffs' note.  Moreover,  the  plaintiffs  were  not  bound  to  exhaust 
their  remedy  against  the  brokers  who  had  misapplied  the  note, 
before  seeking  equitable  relief  by  suit  against  the  bank.  No 
action  against  a  wrong-doer  is  necessary  in  order  to  lay  the  foun- 
dation of  an  action  against  one  to  whom  he  has  delivered  the 
property  in  controversy.^ 

678.  A  creditor  should  credit  upon  the  principal  debt 
•whatever  he  may  collect  upon  the  collateral  security  ;  and  if 
the  debtor,  in  ignorance  that  anything  has  been  received  by  his 
creditor  upon  the  security,  pays  the  whole  amount  of  the  princi- 
pal debt,  he  may  recover  from  him  the  amount  so  collected,  and 
require  the  restoration  of  the  collaterals  remaining  uncollected. 
But  if  in  such  case  the  creditor  returns  the  collaterals  and  tenders 
the  amount  he  has  collected  thereon,  the  debtor  cannot  maintain 
an  action  to  recover  back  the  money  he  paid  upon  the  principal 
debt.2 

A  promise  by  a  creditor  holding  collateral  security  to  give  it 
up  while  the  principal  debt  remains  unpaid,  is  not  binding  upon 
him,  if  made  without  consideration.^ 

679.  Marshalling.  —  A  judgment  creditor  who  holds  col- 
lateral security  will  not  be  restrained,  at  the  instance  of  a  sub- 
sequent judgment  creditor,  from  prosecuting  his  remedy  under 
his  judgment,  until  he  has  pursued  and  exhausted  the  security ; 
especially  if  he  offers  to  substitute  the  other  judgment  creditor 
in  his  place,  on  being  paid  the  amount  of  his  debt.* 

680.  Counsel  fees.  —  When  a  creditor  is  obliged  to  bring 
suit  upon  the  collateral  security  and  recovers  less  than  the 
amount  of  his  chdm,  it  is  proper  to  deduct  a  reasonable  counsel 
fee  before  applying  the  balance  to  the  payment  of  the  principal 
debt.5 

1  Farwell  v.  Importers'  &  Traders'  »  Smith  v.  Strout,  63  Me.  205. 
Nat.   Bank,  90   N.  Y.  483  ;  i\    C.   16  *  Brinkerlioff   v.  Marvin,   5  Johns. 
N.  Y.  Weekly  Dig.  20;  27  Alb.  L.  J.  (N.  Y.)  Ch.  320;   Woolcocks  v.  Hart, 
173;    and  see  Comstock    v.   Ilier,   73  1  Paige  (N.  Y.),  185;  and  see  Evcrt- 
N.  Y.  2G9.  son  v.  Booth,  19  Johns.  (N.  Y.)  486. 

2  Youngs  V.  Stahelin,  34  N.  Y.  258  ^  Griggs  v.  Howe,  2  Abb.  (N.  Y.) 

501 


§  681.]   REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

But  as  against  the  maker  of  the  collateral  note,  when  he  has 
an  equitable  set-off  or  other  defence  to  it  in  the  hands  of  the 
pledgor,  the  pledgee  cannot  be  allowed  his  attorney's  fees  in 
prosecuting  the  action,  but  is  limited  in  his  recovery  to  the 
amount  of  the  debt  secured.^ 


III.  Enforcing  Principal  Debt. 

681.  A  creditor  holding  collateral  securities  may  enforce 
the  principal  debt  by  suit  without  surrendering  the  securi- 
ties. He  is  entitled  to  hold  them  until  he  obtains  payment.^  The 
taking  of  a  collateral  note  of  a  third  person,  payable  at  a  future 
day,  does  not  extend  the  time  of  payment  of  the  principal  debt, 
unless  there  be  an  agreement  to  this  effect.^  There  may  be  cir- 
cumstances under  which  the  taking  of  collateral  security,  during 
the  pendency  of  a  suit  upon  the  principal  debt,  will  be  regarded 
as  suspending  the  action.*  But  ordinarily  the  taking  of  such 
security  does  not  impair  or  suspend  the  creditor's  right  of  action 
upon  the  principal  debt."''  Thus  if  the  purchaser  of  land  assume 
the  payment  of  an  existing  mortgage  upon  the  property  already 
matured,  his  giving  a  bond  payable  at  a  future  time  as  collateral 
security  to  the  mortgage  does  not,  in  the  absence  of  any  accessory 
agreement,  suspend  the  right  of  the  holder  of  the  mortgage  to 
enforce  payment  of  it  forthwith.^     Even  a  promise  or  covenant 

App.  Dec.  2D1;  S.  C.3  Keyes,  166;  342;    Darst   r.   Bates,  95    111.    493; 

Starrett  v.  Barber,  20  Me.  457;  Sliel-  Willielm  v.  Schmi.lt,  84  111.  183,  187. 

don  V.  Raveret,  40  Barb.  (N.  Y.)  203.  <  Harshaw  v.  McKesson,  G5  N.  C 

^  Second  Nat.  Bank  v.  Ileoiingray,  688. 

34  Ohio  St.  381.  6  Hawks  v.  Hinchcliff,  1 7  Barb.  (N. 

2  §130;   Scott  V.  Parker,  1   Q.  B.  Y.)  492;  West  v.  Carolina  Life  Ins. 

809;  Clark  v.  Young,  1   Cranch,  181;  Co.  31  Ark.  476  ;  Wilhehn  v.  Schmidt, 

Bank  of  Rutland  v.  Woodruff,  34  Vt.  supra;  Allen  r.  Clark,   65  Barb.   (N. 

89;    Dngan   v.   Sprague,  2    Ind.   600;  Y.)  563,576;    Willoughby  r.  Spear,  4 

Mendenhall  r.  Lenwell,  5  Blackf.  125;  Bibb  (Ky.),  397. 

Mills  V.Gould,  14  Ind.  278;  Kittera's  ^  Firemen's  Ins.  Co.  v.  Wilkinson, 

Estate,   17    Pa.  St.     416;    Trotter   v.  35  N.  J.  Eq.  IGO,  1 78.     Chief  Justice 

Crockett,  2  Port.  (Ala.)  401 ;   Chap-  Beasley,  delivering  the  opinion  of  the 

man   r.  Clouiih,  6   Vt.    123;  Snow  v.  court,  said:  "  Ihe  transaction  between 

Thomaston  Bank,  19  Me.  269;  Com-  them  was   this:  the  one   party  gave, 

Btock  J'.  Smith,  23  lb.  202;  Abercrom-  and  the  other  party  received,  a  bond 

bie  V.  Mosely,  9  Port.  (Ala.),  145.  conditioned  for  the  payment  of  these 

'  Gary  v.  White,  52  N.  Y.  138  ;  Van  moneys  in  one  year  after  date,  with 

Etten  V.  Troudden,  67  Barb.  (X.  Y.)  the    understanding    that    such   bond 

602 


ENFORCING  PRINCIPAL  DEBT. 


[§  681. 


of  the  creditor,  upon  receiving  collateral  security  not  to  sue  the 
debtor  until  the  securities  shall  be  given  up,  is  not  a  bar  to  a 
suit  at  law  hy  the  creditor,  brought  before  giving  up  the  securi- 
ties;  for  it  is  a  well-settled  principle  of  the  common  law  that  a 
covenant  not  to  sue  within  a  limited  time  cannot  be  so  pleaded, 
the  only  remedy  being  a  suit  upon  such  covenant  or  promise  for  a 
breach  of  it;  and  the  damnges  for  such  breach  might  be  more  or 
less  than  the  amount  of  the  debt  secured. ^ 

It  is  well  settled  that  the  mere  taking  of  collateral  security  on 
time,  without  any  agreement  between  the  parties  for  a  definite 
extension  of  the  time  of  payment  of  the  principal  debt,  does  not, 
per  se,  operate  to  suspend  the  right  of  action  upon  the  principal 
debt  until  the  collateral  security  shall  become  due.^ 

But  if  a  creditor  accept  his  debtor's  own  note  or  check  payable 
at  a  future  day,  it  will  operate  to  extend  the  right  of  action  upon 
the  debt  until  the  maturity  of  the  note;^   and  such  extension 


should  be  collateral  to  the  original 
bond  and  inort'^nge.  Now,  in  terms, 
it  is  declared  thit  tids  obligation  is 
not  to  be  sulistitutionary,  that  is,  it  is 
not  to  take  the  place  of  tbe  primary 
obligation,  but  is  to  be  collateral  to  it. 
From  whar,  circumstance,  then,  is  it  to 
be  deduced  tint  such  primary  obliga- 
tion is  not  to  be  enforced  until  the 
collateral  oliligaiion  falls  due?  It  is, 
indeed,  argueil  that  we  cnnnot  suppose 
that  the  respondent,  unless  this  effect 
were  to  ensue,  would  have  taken  upon 
himself  ihis  personal  covenant;  that 
he  received  nothing  by  it,  if  the  ap- 
pellant could  at  once  proceed  to  fore- 
close the  mortgage.  But  such  a  line 
of  observation  ovi-rlooks  the  fact  that 
although  the  obligur  in  the  collateral 
bond  would  obtain,  from  ihe  nature  of 
the  transaction,  no  binding  obligation 
against  the  innnedi  ite  enforcement  of 
the  morlgage,  he  nevertheless  put 
things  in  su;li  a  position  as  to  render 
it  extremely  unlikely  that  such  a  step 
would  be  taken,  ami  it  is  upon  such 
probabilities  that  Iiiunan  conduct  is 
very  commonly  founled.  .  .  .  'I'he  sole 
question  is.  How  have  the  parties 
agreed ;  and  all  we  know  upon  that 


subject  is,  that  it  was  the  understand- 
ing that  a  collateral  bond  would  be 
given.  That  is  the  entire  agreement. 
If  they  saw  fit,  they  nught  have  agreed 
that  all  proceedings  in  the  original 
bond  and  mortgage  should  be  sus- 
pended during  the  running  of  the  new 
bond.  But  they  did  not  make  any 
special  stipulation  to  this  effect,  and  I 
have  already  said  that  such  a  stipula- 
tion is  not  to  be  inferred  from  the 
giving  of  such  an  instrument.  The 
decisions  forbidding  such  an  inference 
are  numerous."  See  also  Neimcewicz 
V.  Ghan,  3  Paige  (N.  Y.),  613  ;  S.  C. 
11  Wend.  312;  Jones  on  Mortgages, 
§  1190. 

Calvo  V.  Da  vies,  73  N.  Y.  211,  is  a 
case  where  there  was  an  express  agree- 
ment to  extend  the  original  debt. 

1  Foster  v.  Furdy,  5  Met.  (Mass.) 
442. 

2  United  States  v.  Ilodgc,  C  How, 
279;  Gary  v.  White,  52  N.  Y.  138. 
A  remark  to  the  contrary  in  Pratt  ». 
Coman,  37  N.  Y.  440,  is  criticised  as 
not  necessary  to  the  decision,  and  not 
supported  by  authority. 

8  Place  v.  Mcllvain,  38  N.  Y.  96. 
603 


§  682.]      RE51EDIES   UPON  PLEDGES   OF  NEGOTIABLE   PAPER. 

will  discharge  a  surety  of  the  original  debt,  if  it  be  without  his 
consent.^ 


682.  A  creditor  who  has  sold  or  transferred  the  collateral 
paper  cannot  recover  upon  the  principal  debt  without  ac- 
counting either  for  its  face  value  or  its  actual  value.  By  such 
sale  or  transfer  he  has  made  the  collateral  his  own,  and  ex- 
tinguished the  principal  debt,  at  least  to  the  extent  either  of  the 
nominal  amount  of  the  collateral  or  of  its  value.^  The  indorse- 
ment of  a  note  passes  the  property  in  it  to  another,  and  is  evi- 
dence that  it  WHS  sold  for  a  valuable  consideration.  If,  after 
such  indorsement,  an  action  could  be  maintained  on  the  original 
contract,  the  plaintiff  would  receive  double  satisfaction.  The 
fact  that  the  collateral  note  has  proved  worthless,  and  the  cred- 
itor has  made  himself  liable  to  his  assignee  for  the  payment  of 
it,  does  not  avail  the  creditor  unless  he  has  regained  possession 


1  Myers  v.  Welles,  5  Hill  (N.  Y.), 
463;  Fellows  v.  Prentiss,  3  Denio  (N. 
Y.),  512;  Bangs  r.  Mosher,  23  Barb. 
(N.  Y.)  478;  Brooks  v.  Wright,  13 
Allen  (Mass.),  72;  Andrews  v.  Mar- 
rett,  58  Me.  539  ;  Appleton  v.  Parker, 
15  Gray  (Mass.),  173;  Sayre  f.  King, 
17  W.  Va.  562,573.  In  the  latter 
case  the  law  upon  this  subject  is  quite 
fully  and  clearly  stated  by  Green,  C. 
J.,  delivering  the  opinion  of  the  court. 
From  an  examination  of  the  authori- 
ties, which,  however,  cannot  be  fully 


by  direct  or  circumstantial  evidence, 
that  such  chose  in  action  was  received 
as  an  absolute  or  conditional  payment. 
If  any  chose  in  action  was  received  as 
absolute  payment  of  a  preceding  debt, 
it  discharges  the  sureties  in  the  orig- 
inal debt ;  and  if  received  as  condi- 
tional payment,  and  such  chose  in  ac- 
tion is  pnyable  at  a  future  time,  it 
amounts  to  a  suspension  of  the  right 
of  the  creditor  to  sue  on  his  original 
debt;  and  if  taken  without  the  con- 
sent  of   the    sureties   in   the  original 


reconciled,  he  deduces  these  proposi-  debt,  it  discharges  them  from  all  lia- 

tions:  "  The  taking  of  a  bill  or  nego-  h'lUty.     If  such   chose  in   action  was 

tiable    note   for   an   existing   debt   is  received  as  collateral  security,  though 

prima  facie  condhional  payment  there-  it  be  payable  at  a  future  time,  unless 

of;  but  it  may  be  shown  by  direct  or  there  was  an   agreement  to  postpone 

circumstantial  evidence  that  the   bill  the  right  of  suit  on  the  original  debt, 


or  negotiable  note  was  taken  as  an 
absolute  payment,  or  as  collateral  se- 
curity merely. 

"  If  instead  of  commercial  paper  an- 
other chose  in  action,  such  as  an  un- 
negotiable  note,  a  bond,  a  deed  of 
trust  or  mortgage,  or  an  obligation  to 
deliver  goods,  be  given  by  the  debtor 
to  his  creditor,  such  chose  in  action  is 
prima  facie  collateral  security  for  the 
original  debt;  but  it  may  be  shown 

604 


proven  by  other  evidence,  direct  or 
circumstantial,  the  taking  of  such  col- 
lateral security  does  not  suspend  the 
right  of  action  on  the  original  debt, 
and  therefore  does  not  discharge  the 
sureties  from  their  liability  therefor." 
But  see  Elwood  v.  Deifendorf,  5  Bai'b. 
(N.  Y.)  398. 

2  Cocke  V.  Clianey,  14  Ala.  65 ; 
Spalding  v.  Bank  of  Susquehanna 
County,  9  Pa.  St.  28  ;  Harris  v.  John- 
ston, 3  Cranch,  311,  318,  per  Marshall, 
C.J. 


ENFORCING  PRINCIPAL  DEBT.  [§  683. 

of  it  SO  that  he  can  return  it  to  his  debtor  upon  receiving  satis- 
faction for  the  principal  debt.^  Tlie  presumption  is  that  a  cred- 
itor, in  transferring  colhiteral  paper,  has  received  the  full  amount 
appearing  to  be  due  upon  its  face.  But  even  if  it  appear  that 
he  has  received  less  than  the  face  of  the  paper,  he  would  be  re- 
garded as  having  elected  to  accept  satisfaction  out  of  the  col- 
laterals, and  would  be  bound  by  such  election,  and  woultl  not  be 
permitted  afterwards  to  resort  to  the  principal  debt  to  recover 
any  deficiency  occurring  in  this  way.  Having  without  the  au- 
thority of  the  principal  debtor  transferred  the  securities  to  a 
third  person,  he  will  be  held  to  have  elected  to  take  tliera  at 
their  face,  in  satisfaction  to  that  extent  of  the  principal  debt.^ 
Furthermore,  as  the  creditor  holds  the  collateral  securities  in 
trust  for  the  benefit  of  his  debtor,  after  the  discharge  of  the 
principal  debt,  if  the  securities  upon  their  face  represent  a  larger 
amount  than  the  principal  debt,  the  debtor  may  recover  of  the 
creditor,  after  he  has  disposed  of  the  collateral  paper,  the  excess 
of  this  over  the  amount  of  the  principal  debt. 

683.  It  is  no  defence  to  a  creditor's  action  upon  the  prin- 
cipal debt  that  he  has  irregularly  foreclosed  mortgages  held 
as  collateral,  and  himself  become  the  purchaser.  Thus,  a 
debtor  having  assigned  to  his  creditor  absolutely  several  mort- 
gages of  real  estate  to  secure  a  note,  the  creditor  foreclosed  the 
mortgages  and  purchased  the  property.  In  a  subsequent  suit 
upon  the  principal  debt  the  creditor  offered  to  credit  tlie  sum  ob- 
tained upon  the  foreclosure  sales  ;  but  the  debtor  filed  an  affi- 
davit of  defence,  wherein  he  averred  that  the  creditor  had  acted 
as  owner  of  the  mortgages,  and  had  sued  thera  and  purchased 
the  property  without  notice  to  the  debtor,  and  that  he  had  sold 
the  property  for  an  inadequate  sum  of  money,  when  by  prudent 
management  he  might  have  obtained  a  much  larger  sum.  It  was 
held,  however,  that  the  affidavit  of  defence  was  insufficient,  and 
that  the  plaintiff  was  entitled  to  judgment  either  for  the  balance 
of  the  claim  or  for  the  whole  original  amount  of  it,  since,  accord- 
ing to  the  defence,  the  collaterals  have  not  been  effectually  sold, 
but  have  only  been  changed  from  mortgages  of  land  to  a  title  to 
the  land  itself,  which  is  still  held  for  the  debtor's  use  ;  and  tliere- 

1  Cocke  i;.  Chaney,  14  Ala.  65.  "Hawks    v.    Hinchcliff,    17    Barb. 

(N.  Y.)  492. 

605 


§§  684,  685.]      REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

fore  tho  creditor  has  constituted  himself  a  trustee  for  the  debtor, 
and  so  now  holds  the  land  only  as  he  held  the  mortgages,  as  col- 
lateral security  for  the  payment  of  the  principal  debt ;  and  in 
that  case  the  debtor  may  compel  a  reconveyance  to  himself  on 
tender  of  the  whole  amount  of  the  debt.^ 

684.  Judgment  upon  the  collateral  does  not  satisfy  the 
principal  debt.  Thus  a  recovery  of  judgment  by  the  creditor 
against  the  maker  of  the  collateral  note,  and  against  the  prin- 
cipal dt-btnr  as  indorser  of  that  note,  does  not  operate  as  a  satis- 
faction of  the  original  debt,  nor  constitute  a  bar  to  a  suit  upon 
that  debt ;  ^  neither  would  the  creditor's  assignment  of  such  judg- 
ment to  the  debtor,  upon  recovering  part  payment  of  the  debt, 
operate  as  a  satisfaction  of  the  original  debt  beyond  the  amount 
so  paid  on  account  of  it.^  Judgment  may  be  recovered  both  in 
the  suit  upon  the  collateral  and  upon  the  piincipal  obligation  ; 
and  eitlier  judgment  may  be  collected  ;  although,  in  case  the 
judgment  upon  the  collateral  debt  exceed  the  other,  and  it  be 
collected  in  full,  the  surplus  is  of  course  held  for  the  benefit  of 
the  dt4)tor.^  Neither  does  the  recovery  of  judgment  upon  the 
principal  debt,  and  the  arresting  of  the  body  of  the  debtor  upon 
execution,  impair  the  creditor's  right  to  hold  and  enforce  the  col- 
lateral security.^ 

685.  A  creditor  holding  collaterals  is  not  bound  first  to 
apply  them  before  enforcing  his  remedy  against  tlie  debtor.^ 
Even  the  fact  that  the  debtor  is  the  maker  of  an  accommodation 
note  does  not  change  this  rule.'^ 

But  as  an  exception  to  this  rule  equity  may  require  the  cred- 
itor to  apply  collateral  security'  before  proceeding  to  enforce  col- 
lection from  the  estate  of  a  deceased  debtor,  when  such  collateral 
is  ample,  and  the  personal  estate  in  the  hands  of  his  adminis- 
trator is  insufhcient  to  pay  the  claim,  and  resort  to  the  real  estate 
would  bii  necessary.^ 

1  Snii;li  v.  Bunting,  86  Pa.  St.  116.  5  Smith  v.  Strout,  63  Me.  205. 

2  Buriilu'iiiier  v.  Hart,  27  Iowa,  19;  6  Lewis  v.  United  States,  92  U.  S. 
Hawks  V.  lliachclitf,  17  Barb.  (N.  Y.)     618. 

492.  7  Lord  v.  Ocean  Bank,  20  Pa.  St. 

*  B  irnlu'imcr  v.  Hart,  supra.  384.     See  Conistock  v.  Smith,  23  Me. 

*  Plaiit'.i  Manufacturing  Co.  v.  Fal-     202. 

vey,  20  Wis.  200.  s  Alexander  v.  Alexander,  64  Ind. 

506  541. 


NEGOTIABLE   PAPER   TAKEN   IN   PAYMENT.      [§§  C86,  687- 

686.  A  surety  upon  the  principal  note  cannot  require  the 
creditor  to  proceed  upon  the  collateral  security  before  bring- 
ng  suit  against  the  surety.  The  latter  may,  at  any  time  after 
the  maturity  of  the  debt,  discharge  it  and  take  the  security.^ 

But  the  circumstances  may  be  such  that  the  creditor  will  be 
bound  to  apply  the  proceeds  of  securities  pledged  by  the  principal 
debtor  before  resorting  to  other  securities  furnished  by  a  surety.^ 

The  indorsee  of  a  negotiable  note  is  not  bound  in  the  first  place 
to  resort  to  securities  furnished  by  the  payee,  so  as  to  enable  the 
principal  debtor  to  avail  himself  of  a  right  of  set-off  against  the 
payee  which  did  not  exist  at  the  time  of  the  transfer  of  the  note.^ 

IV.  Negotiable  Paper  taken  in  Payment. 

687.  A  debtor  claiming  that  his  creditor  has  agreed  to  ac- 
cept collaterals  held  by  him  in  satisfaction  of  his  debt  must 
establish  the  defence  by  positive  evidence.  The  mere  acceptance, 
by  a  creditor,  of  a  negotiable  note  of  a  third  person  makes  it  but 
collateral  security ;  and  nothing  short  of  an  actual  agreement  to 
receive  it  in  payment,  or  some  evidence  from  which  a  positive 
inference  of  dischai-ge  can  be  made,  will  suffice  to  produce  this 
effect.*  The  difficulty  in  the  application  of  this  rule  \\x^  g  n- 
erally  been  found  to  be  in  determining  what  evidence  is  sufficient 
to  establish  the  fact  of  the  agreement,  or  to  justify  submitting 
the  evidence  to  the  jury  as  raising  a  question  of  fact  for  their  de- 
termination.5  When  there  is  a  conflict  of  evidence  upon  the 
question  whether  a  note  of  a  third  person  was  received  as  pay- 
ment, or  merely  as  collateral,  the  question  is  one  for  the  jury.^ 
Such  an  agreement,  when  alleged  to  be  contemporaneous  with 
the  creation  of  the  debt,  and  is  not  mentioned  in  a  written  assign- 

^  Brick  V.  Freehold  Nat.  Banking  a  creditor  taking  from  his  debtor  the 

Co.  37  N.  J.  L.  307.  oblii^ation  of  a  tliird  jn-rson  talies  it 

2  Jenkins  f.  Gunnison,  50  Wis,  388.  in  payment  and  not   as  secnriiy;  al- 

8  M linger  v.  Albany  City  Nat.  tliougii  this  presumption  may  be  re- 
Bank,  85  N.  Y.  580.  biitteil   by  evidence  to   the  contrary. 

*  Wilbelra  v.  Schmidt,  84  111.  183;  But  this  is  neither  law  nor  sense. 

Prettyman   v.    Barnard,    37   lb.   105;  ">  Wri'^ht   v.   Crockery  Ware  Co.  1 

Noel  V.  Murray,  13   N.  Y.   167;  and  N.  II.  281  ;  Whitney  r.  Coin,  20  lb. 

see  Burlington  Gas  Light  Co.  W.Greene,  354;  Noel  v.  Murray,   13  N.  Y.  167, 

22  Iowa,  508.     In  Youngs  v.  Staheiin,  per  Miirvin,  J. 

84   N.  y.  258,   there  is  a  dictum  by  "  Atlantic  F.  &  M.  Ins.  Co.  r.  Boies, 

Smith,  J.,  that  the  presumption  is  that  6  Duer  (N.  Y.),  583. 

607 


§  688.]      REMEDIES  UPON  PLEDGES   OF  NEGOTIABLE  PAPER. 

meiit  of  the  collaterals,  which  are  less  in  amount  than  the  debt, 
■will  be  considered  as  intrinsically  improbable.^  The  fact  that  a 
pledgee  of  corporate  stock  has  voted  upon  it  at  a  stockholders' 
meeting  does  not  show  that  he  has  agreed  to  accept  it  in  payment 
of  the  debt,  nor  does  it  constitute  a  conversion  of  the  stock.^  Af- 
ter a  creditor  has  obtained  judgment  upon  the  collateral  note, 
and  transferred  this  to  his  debtor,  and  the  latter  has  received  the 
benefit  of  it,  he  is  estopped  from  setting  up  the  defence  tliat  the 
collateral  note  was  taken  by  the  creditor  towards  payment  of  the 
debt.3 

The  taking  of  a  note  of  a  third  person  for  an  existing  debt  is 
deemed  a  conditional  and  not  an  absolute  payment  of  the  original 
debt,  unless  otherwise  agreed  between  the  parties.^ 

688.  There  is  a  distinction,  however,  between  a  note  of  a 
third  person  taken  for  an  antecedent  debt,  and  one  accepted 
for  property  sold;  for  wliile  a  note  taken  for  an  antecedent  debt 
is  regarded  only  as  a  conditional  payment,  and  in  effect  operates 
as  collateral  security,  a  note  taken  for  goods  sold  is  a  payment.^ 
In  Whitbeck  v.  Van  Ness,^  where  a  note  of  a  third  person  was 
taken  upon  the  sale  of  a  horse,  and  the  note  not  being  paid  at 
maturity,  the  vendor  brought  suit  against  the  purchaser  for  the 

1  Brown  r.Hiatt,l  Dill.  3  72;  Kiser  v.  Mundal,  1  Salk.  124;  S.  C.  12 
V.  Ruddick,  8  Blackf.  (Ind.)  382  ;  Kel-  Mod.  203  ;  Ward  v.  Evans,  2  Ld. 
sey  V.  Rosborough,  2  Rich.  (S.  C.)  Raym.  928;  Owenson  r.  Morse,  7  T. 
241.  R.    60;  Whitbeck   v.   Van   Ness,    11 

2  Heath  y.  Silverthorn  Lead  Mining  Johns.  (N.  Y.)  413;  Breed  v.  Cook, 
&  Smelting  Co.  39  Wis.  146.  15  lb.  241;  Noel  v.  Murray,  1   Duer 

8  Hulin^s  V.  Lykins,  50  Mo.  399.  (N.  Y.),  385;  Ferdon  ?;.  Jones,  2  E.  D. 

4  Kephart  v.  Butcher,  17  Iowa,  240;  Smith  (N.  Y.),  106;  Rew  v.  Barber,  3 

Muldon   r.   Whitlock,  1  Cow.  (N.  Y.)  Cow.  (N.  Y.)  272  ;  Wise  v.  Chase,  44 

290,   30G;   Whitbeck   r.  Van  Ness,  11  N.Y.  337.    In  Clark  i'.  Mundal,  sj/pra, 

Johns.  (M.  Y.)  408  ;  Johnson  u.  Weed,  Lord  Holt  said,  that  if  A.  sells  goods 

9  lb.  310  ;  Glenn  v.  Smith,  2  G.  &  J.  to  B.,  and  B.  is  to  give  a  bill  in  satis- 

(Md.)  493  ;  McConnell  v.  Stetfinius,  2  faction,  B.  is   discharged  though  the 

Gilm.  (111.)  707  ;  Shipman  r.  Cook,  16  bill  is  never  paid,  for  the  bill  is  pay- 

N.  J.   Eq.   251;  Tobey  v.  Barber,   5  nient;    but    oiherwise    a   bill    should 

Johns.  (N.  Y.)  68;  Butler  i'.  Haight,  8  never  discharge  a  precedent  debt  or 

Wend,  535;  Vail  v.  Foster,  4   N.Y.  contract;   but  if  part  be  received,  it 

312;  Partee  v.  Bedford,  51  Miss.  84  ;  shall  be  only  a  discharge  of  the  old 

Taylor  y.  Conner,  41   lb.  722;  Guion  debt  for  so  much.     Bayard  v.  Shunk, 

V.  Doherty,  43  lb.  538;  Lear  v.  Fried-  1  W.  &  S.  (Pa.)  92;  Bicknell  v.  Wa- 

lander,  45  lb.  559.  terman,  5  R.  I.  43. 

6  Emly  V.  Lye,  15  East,  7,  12 ;  Clark         «  11  Johns.  (N.  Y.)  409,  413. 
508 


NEGOTIABLE   PAPER   TAKEN   IN  PAYMENT.  [§  689. 

price,  the  court  said :  "  The  intrinsic  circumstances  of  this  case 
plainly  show  that  the  plaintiff  considered  himself  as  taking  the 
note  at  his  own  risk.  It  was  made  payable  to  the  plaintiff  him- 
self, and  the  defendant,  by  not  indorsing  it,  or  guaranteeing  the 
payment,  clearly  declined  pledging  his  own  responsibility.  The 
offer  was  made  of  the  note  for  the  horse  ;  the  plaintiff  took  time 
to  consider  whether  it  was  advisable  to  take  the  note,  and,  after 
deliberation,  and  we  must  presume,  too,  after  inquiry,  agreed  to 
sell  the  horse  for  the  note."  In  like  manner,  in  Breed  v.  Cook,i 
it  was  considered  that  the  purchaser's  declaration,  that  he  would 
not  indorse  the  note,  authorized  the  presumption  that  the  note 
was  taken  in  absolute  payment.  In  accepting  such  a  note  with- 
out the  purchaser's  indorsement,  the  seller  is  considered  as  part- 
ing with  his  goods  for  the  note,  and  as  relying  exclusively  upon 
the  credit  and  solvency  of  the  parties  thereto,  and  as  waiving 
recourse  upon  the  buyer,  if  it  should  turn  out  not  to  be  good.  In 
the  cases  mentioned  it  would  seem  that  it  was  a  matter  of  agree- 
ment, either  express  or  to  be  implied  from  circumstances,  that 
the  transfer  of  the  note  at  the  time  of  the  purchase  of  property 
should  operate  as  payment  absolutel3^  Of  course  it  would  be 
competent  for  the  parties  to  agree  that  such  a  transfer  should 
operate  only  as  collateral  security,  and  such  an  agreement  might 
also  be  inferred  from  circumstances  attending  the  transaction. 

689.  Of  course  the  parties  may,  by  express  agreement, 
make  a  third  person's  note  payment  of  an  existing  demand. 
Thus,  where  a  debtor  offered  to  deliver  to  his  creditor  such  a 
note,  or  to  pay  him  the  money  at  an  early  date,  and  the  creditor 
chose  the  note,  and  thereupon  received  it  and  credited  it  to  the 
debtor,  the  note  was  held  to  have  been  received  in  payment.''^ 
When,  upon  a  sale  of  goods,  the  note  of  a  third  person  is  ex- 
pressly received  in  payment,  the  purchaser's  indorsement  of  the 
note  does  not  change  the  legal  effect  of  the  transfer  as  payment. 

^  15  Johns.  (N.  Y.)  241  ;   and  see  it  does  not  become  a  new  security." 

Bank  of  England  v.  Newman,  1  Ld.  And  see  Union  Bank  of  Tennessee  v. 

Raym.  412;  S.   C.  12  Mod.  241,  per  Smiser,  1   Snced   (Tenn.),  '^Ol;  Long 

Lord   Holt,   C.  J.     "If  a  man  has  a  v.  Spruill,  7  Jones  (N.  C.)  L.  90. 
bill  payable  to  him  or  bearer,  and  he         ^  gt,  John  v.  Purdy,  1   Sandf.  (N. 

delivers   it  over  for  money  received,  Y.)   9;  and  see  Mosley  v.   Floyd,  SI 

without  indorsement  of  it,   this  is  a  Ga.  5G4 ;  Union  Bank  of  Tennessee  v. 

plain  sale  of  the  bill,  and  he  who  sells  Smiser,  supra. 

509 


§  690.]      REMEDIES   UPON  PLEDGES   OF  NEGOTIABLE   PAPER. 

The  vendor  cannot  in  such  case  maintain  an  action  for  the  price 
of  the  goods,  although  he  produces  the  note  and  offers  to  sur- 
render it  upon  the  trial.  In  such  case,  the  only  engagement 
made  by  the  purchaser  is  that  of  a  commercial  indorser.  In 
strictness,  he  does  not  agree  to  pay  for  the  goods,  but  agrees  that, 
if  the  note  be  not  paid  upon  due  demand  thereof  at  maturit}"^,  he 
will,  on  receiving  due  notice,  pay  the  same.  "  The  vendor  may 
sell  and  does  sell  upon  any  terms  that  please  him,  and  his  con- 
tract of  sale  is  a  single  contract.  If  by  that  contract  he  gives 
his  goods  for  half  their  value,  he  is  bound.  If  he  gives  them  for  a 
note  of  the  purchaser,  he  must  abide  its  tenor.  If  he  sells  for  the 
note  of  a  third  person,  it  is  a  mere  exchange  of  property,  and  he 
cannot  look  to  the  purchaser.  If  he  requires  a  guaranty,  general 
or  conditional,  he  must  pursue  it.  If  he  requires  the  purchaser  to 
indorse  the  note  for  which  he  makes  the  sale,  he  holds  such  pur- 
chaser's liability  as  indorser,  and  nothing  more."  ^  The  circum- 
stance that  the  purchaser  of  goods,  in  transferring  to  the  seller  the 
note  of  a  third  person,  with  a  view  to  add  his  own  responsibility, 
indorses  thereon  an  absolute  guaranty,  is  evidence,  and  perhaps 
conclusive  evidence,  that  the  note  was  given  and  received  in  pay 
ment.^ 

690.  The  inclination  of  courts  to  regard  the  obligation  of 
a  third  person  as  collateral  security,  when  there  is  no  express 
agreement  that  it  shall  be  taken  as  payment,  is  shown  in  the  fol- 
lowing case  :  A  farmer  desiring  to  obtain  a  loan  of  two  thousand 
dollars  to  pay  off  two  mortgages  upon  his  farm,  one  of  which  was 
not  then  due,  negotiated  for  a  loan  of  that  sum  upon  a  first  mort- 
gage of  the  farm.  The  lender  applied  to  his  own  banker  for  the 
money ;  but  the  banker,  though  owing  him  more  than  that  sum, 
could  not  well  pay  this  amount  at  once,  and  it  was  therefore  ar- 
ranged that  one  half  the  amount  should  be  paid  over  to  the  bor- 
rower, out  of  which  one  of  the  mortgages  should  be  satisfied,  and 
that  the  banker  should  give  his  certificate  of  deposit  for  the  re- 
maining half,  payable  to  the  order  of  the  borrower  at  the  time 
the  other  mortgage  should  become  due  ;  and  tlie  lender  took  a 
mortgage  for  two  thousand  dollars  upon  the  farm.  The  banker 
failed  before  the  certificate  of  deposit  became  payable,  and  upon 

1  Sofie  V.  Gallagher,  3  E.  D.  Smith         2  Monroe  i;.  IIo£f,  5  Denio  (N.  Y.), 
(N.  Y.),  507,  per  Woodruff,  J.;  and     3C0. 
see  Shipnian  v.  Cook,  IG  N.  J.  Eq.  251. 

510 


DILIGENCE  IN   COLLECTING   COLLATERAL  PAPER.      [§§  6    1,692. 

the  question  whether  the  certificate  of  deposit  was  received  as 
paj'ment  or  as  security  only,  it  was  held  that  the  fair  inference 
from  all  the  facts  was  that  it  was  only  held  as  collateral,  and  that 
the  loss  upon  the  certificate  should  be  borne  by  the  lender.^ 

691.  But  in  the  absence  of  any  agreement,  either  express 
or  implied,  the  transfer  of  a  note  of  a  third  person  at  the 
time  of  the  purchase  of  property  is  presumed  to  be  a  pay- 
ment.2  "  Where  there  is  no  debt  existing  between  the  parties, 
and  the  one  delivers  property  to  the  other,  and  receives  in 
return  the  note  of  a  third  person  in  full  or  part  payment,  and 
gives  a  receipt  saying  that  it  is  received  in  full  or  part  payment, 
the  presumption  is  that  it  was  so  received,  and  the  onus  is  then 
upon  the  p:irty  receiving  such  note  to  show  the  contrary."  3 

If  a  purchaser  deliver  the  note  of  a  third  person  for  goods 
purchased,  knowing  that  the  maker  is  insolvent,  but  representing 
him  as  a  man  of  property,  the  taking  of  the  note  under  such 
fraudulent  misrepresentation  will  not  be  held  to  be  payment  for 
the  goods.*  But  knowledge  of  the  fact  that  the  maker  of  a  note 
given  in  exchange  for  merchandise  had  asked  and  obtained  from 
one  of  his  creditors  a  renewal  of  one  of  his  notes,  without  security, 
alleging  as  an  excuse  —  a  fair  one  for  a  small  manufacturer  — 
that  he  had  been  short  of  water,  is  far  from  being  knowledge  of 
the  insolvency  of  the  maker,  or  of  a  fact  from  which  insolvency 
should  reasonably  be  inferred.^ 

V.  Diligence  in  Collecting  Collateral  Paper. 

692.  A  pledgee  of  negotiable  paper  is  bound  to  use  reason- 
able diligence  in  the  collection  of  it.^     The  diligence  required  of 

1  Burrows  v.  Bangs,  34  Mich.  304.        Roberts  v.  Thompson,  14  Ohio  St.  1; 

2  Partee  v.  Bedford,  51  Miss.  84;  Muirhead  v.  Kirkpatrick,  21  I'a.  St. 
Bayard  t?.  Sliunk,  IW.   &  S.  (Ta.)  92.     237;    Sellers    v.  Jones,    22    lb.   423; 

«  Noel  V.  Murray,  13  N.  Y.  1G7,  per  Lyon  v.  Huntingdon  Bank,  12  S.  &  R. 

Dean,  J.;    and  see  i^.  C.  1  Duer,  335,  (Pa.)    Gl,    G7;    Miller  r.    (Gettysburg 

per  Oakley,  C.  J.  Bank,  8  Watts  (Pa.),  1U2;  BanH  of  U. 

*  Wilson  V.  Force,  G  Johns.  (N.  Y.)  S.  v.  Peabody,  20  Pa.  St.  454  ;   J^ishy 

HO.  r.  O'Brien,  4  Watts  (Pa.),  141;  Girard 

6  Burgess  v.  Chapin,  5  R.  I.  225.  F.  &  M.  Ins.  Co.  v.  Marr,  4G  Pa.  St. 

«  Ex  parte  Mure,  2  Cox,   G3;   VVil-  504;  Lamberton  v.  Windoni,  12  Minn. 

Hams    V.    Pi  ice,    1    Sim.   &    Stu.  681;  232;    ii.    C.    18    lb.  SJJG;     Cul(iuilt  v. 

Lawrence  v.  McCalmont,  2  How.  42G;  Stultz,  G5  Ga.  305;  Blouint'.  Hurt,  30 

Slevin  v.    Morrow,  4   Jnd.  425;  Ki^cr  La.  Ann.  714. 
V.   Ruddick,    8    Blackf.    (Ind.)    382;  511 


§  693.]      REMEDIES   UPON   PLEDGES   OF   NEGOTIABLE  PAPER. 

him  is  the  same  in  effect  as  that  required  of  an  agent  or  attorney 
employed  to  collect  the  demand.^  In  the  first  place,  he  is  bound 
to  exercise  this  diligence  in  fixing  the  liability  of  the  parties  to 
such  paper,  when  necessar}^,  by  due  demand  of  pa^nnent  and 
notice  of  non-payment ;  ^  and,  in  the  next  place,  he  is  bound  to 
exercise  this  diligence  in  the  collection  of  the  paper.  If  he 
neglects,  after  the  maturity  of  the  paper,  to  enforce  payment,  he 
is  liable  to  the  pledgor  for  any  loss  upon  the  paper  which  might 
have  been  prevented  by  proper  diligence  in  proceedings  to  collect 
it.^  The  creditor  is  not  excused  from  attempting  to  collect  a  bill 
or  note  taken  as  collateral  security,  on  the  ground  that  the  maker 
has  declared  that  he  has  a  defence  which  he  will  interpose.^ 


693.  Reasonable  diligence  upon  the  part  of  the  creditor  in 
making  demand  and  giving  notice,  so  as  to  preserve  the  legal 
liability  of  indorsers  of  the  collateral  note,  is  preliminary  to 
diligence  in  enforcing  payment  of  the  note  at  maturity,  and  the 
requirements  in  both  cases  rest  upon  the  same  principle,  and  are 
of  equal  obligation.^     The  reason  for  thus  requiring  the  preserva- 


^  Buckingham  v.  Payne,  36  Barb. 
(N.  y.)  SI  Tllazard  v.  Wells,  2  Abb. 
(N.  Y.)  X.  C.  444;  Kephart  v.  Butch- 
er, 17  Iowa,  240;  Lawrence  v.  Mc- 
Calmont,  2  How.  426.  For  a  case  of 
an  attorney  taking  collateral  for  a 
claim  in  his  hands  for  collection,  and 
agreeing  with  the  debtor  to  collect 
the  security,  see  Bradford  v.  Arnold, 
33  Tex.  412. 

2  Foote  V.  Brown,  2  McLean,  369; 
Peacock  v.  Pursell,  14  C.  B.  (N.  S.) 
728;  ISl'LugLan  v.  Bovard,  4  Watts 
(Pa.),  308;  Ornisby  v.  Fortune,  16 
S.  &  R.  (Pa.)  302;  Russell  v.  Hester, 
10  Ala.  535;  Charter  Oak  Life  Ins. 
Co.  V.  Smith,  43  Wis.  329  ;  Jennison 
V.  Parker,  7  Mich.  355. 

^  Pickens  v.  Yarborough,  26  Ala. 
417;  May  v.  Sharp,  49  Ala.  140; 
Reeves  v.  Plough,  41  Ind.  204;  Suc- 
cession of  Liles,  24  La.  Ann.  550; 
Cardin  v.  Jones,  23  Ga.  1 75  ;  Barrow 
V.  Rhinelander,  3  Johns.  (N.  Y.)  Ch. 
614;  Hall  v.  Green,  14  Ohio,  499; 
Charter  Oak  Life  Ins.  Co.  v.  Smith, 

512 


supra;  Bonta  r.  Curry,  3  Bush  (Ky.), 
678;  Noland  i'.  Clark,  10  B.  Mon. 
(Ky.)  239;  Word  v.  Morgan,  5  Sneed 
(Tenn.),  79. 

*  Wakeman    v.  Gowdy,    10   Bosw. 
(N.  Y.)  208. 

5  Peacock  v.  Pursell,  14  C.  B.  (N.  S.) 
728.  Earle,  C.  J.,  said:  "  The  legal 
effect  of  taking  a  bill  as  collateral 
security  is,  that  if,  when  the  bill  ar- 
rives at  maturity,  the  holder  is  guilty 
of  laches,  and  omits  duly  to  present 
it,  and  to  give  notice  of  its  dishonor, 
if  not  paid,  the  bill  becomes  money  iu 
his  hands  as  between  him  and  the 
person  from  whom  he  received  it." 
Williams,  J.:  "I  am  of  the  same 
opinion.  The  laches  of  the  plaintiffs  in 
not  duly  presenting  the  bill  constituted 
this  a  payment  before  action  brought." 
Willes,  J.:  "I  am  of  the  same  opinion. 
If  a  creditor,  when  the  bill  falls  due, 
is  guilty  of  laches,  whereby  the  se- 
curity becomes  deteriorated  or  value- 
less, it  becomes  equivalent  to  actual 
payment." 


DILIGENCE   IN    COLLECTING    COLLATERAL   PAPER.         [§  693. 

tion  of  the  legal  validity  of  the  pledge  by  the  pledgee  must  be 
for  the  purpose  of  preventing  its  pecuniary  value  from  being 
impaired,  and  because  the  pledgee  only  can  do  it.  Upon  what 
principle,  then,  can  it  be  said  that  the  pledgee  is  not  required  to 
use  ordinary  diligence  to  preserve  the  pledge  from  loss  by  the  in- 
solvency of  third  parties  who  are  liable  thereon  ?  It  is  to  be 
observed  that  it  is  not  the  insolvency  of  the  debtor  himself  that 
is  to  be  guarded  against,  but  that  of  a  third  person ;  the  great 
object  in  both  cases  is  to  preserve  the  pecuniary  value  of  the 
property ;  to  do  this,  active  measures  involving  expense  are  re- 
quired in  the  one  case  and  are  necessary  in  the  other  ;  the  same 
degree  of  diligence  is  required  in  each  case,  and  in  both  the 
pledgee  alone  can  resort  to  the  means  necessary  for  the  preserva- 
tion of  the  pledge.  But  further,  if  the  pledgee  is  not  bound  to 
do  this,  the  debtor  may  be  left  entirely  without  remedy.  A  note 
given  as  collateral  security  may  be  due  long  before  the  principal 
debt  matures.  In  such  case  the  creditor  is  not  bound  to  receive 
the  debt  until  it  is  due,  yet  he  has  entire  control  of  the  collateral 
security,  which  may  be  the  note  of  a  third  person  who  is  on  the 
eve  of  insolvency,  and  the  creditor  refuses  to  preserve  the  col- 
lateral security  by  its  collection  ;  the  hands  of  the  debtor  are 
tied ;  he  is  in  no  default  whatever,  yet  he  must  stand  b}^  and  see 
his  property  becoming  utterly  worthless  by  the  insolvency  of  the 
maker  of  the  note  ;  or  if  a  remedy  exists,  it  is  to  compel  the 
creditor  to  active  measures  for  the  preservation  of  the  debt, 
which  is  the  very  ground  of  objection  to  this  defence. 

"  In  case  of  an  ordinary  pledge  of  tangible  personal  property, 
the  pledgee  is  bound  to  ordinary  diligence  in  the  preservation  of 
the  property,  whether  it  be  perishable  or  not.  What  would  be 
ordinary  diligence  in  one  case  would  not  be  in  the  other;  but  the 
diligence  is  required,  whatever  may  constitute  it.  The  identical 
property,  when  it  can,  must  be  preserved ;  but  if  it  cannot,  then 
the  value  must  be  preserved.  Why  will  not  the  same  rule  apply 
to  bills,  notes,  bonds,  and  other  choses  in  action  ?  It  is  not  alone 
the  bill,  note,  or  bond  that  is  pledged,  for  those  are  but  the  evi- 
dence of  the  indebtedness,  but  the  indebtedness  itself  is  the  sub- 
stantial matter  of  the  pledge  :  it  is  as  capable  of  protection  as 
the  paper  or  contract  which  is  the  evidence  of  it ;  the  latter  may 
be  lost  without  impairing  the  former,  but  if  the  former  is  lost 
the  latter  is  valueless.  The  indebtedness,  then,  is  the  substantial 
aa  613 


§  694.]      REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

pledge ;  and  as  men  in  the  exercise  of  ordinary  care  generally  pre- 
serve property  of  their  own  of  this  character,  they  may  also  by 
the  same  care  preserve  it  when  it  is  the  subject  of  a  pledge  ;  and 
as  between  the  parties  to  a  contract  of  pledge  like  the  one  under 
consideration,  we  see  no  reason  why  the  pledgee  is  not  answer- 
able when  the  pledge  is  lost  through  his  negligence."  ^  In  the 
exercise  of  such  ordinary  care  and  diligence  to  preserve  the  col- 
lateral note  from  being  lost  by  reason  of  the  insolvency  of  the 
maker,  it  is  requisite  that  the  pledgee  shall  resort  to  active  ef- 
forts to  collect  the  note  by  action.^ 

The  ground  of  a  creditor's  liability  for  a  loss  to  his  debtor, 
occurring  through  the  creditor's  negligence  in  enforcing  the  col- 
lateral security,  is  said  to  rest  in  the  privity  in  contract  between 
the  debtor  and  creditor,  established  by  the  debtor's  assignment 
of  the  collateral,  which  invests  the  creditor  with  the  ownership 
of  the  collateral,  for  all  pui-poses  of  dominion  over  the  debt  as- 
signed. He  alone  is  empowered  to  receive  the  money  to  be  paid 
upon  it,  and  to  control  it,  in  order  to  protect  his  right  under  the 
assignment.^ 

694.  A  delay  of  three  days  after  the  maturity  of  a  draft 
held  as  collateral  before  presenting  it  for  payment  renders  the 
holder  liable  for  a  loss  occasioned  by  the  insolvency  of  the  drawer 
occurring  immediately  after  this.^  "  The  fair  construction  of  the 
contract  of  the  parties  is,  that  the  creditor  will  use  proper  dili- 
gence in  the  collection  of  the  security,  and  will  account  for  the 
same,  and  he  is  certainly  forbidden  such  negligence  as  shall  pro- 
duce loss  to  the  debtor  who  transfers  the  paper  to  him.  His 
duties  arise  out  of  the  transaction.  He  receives  from  his  debtor 
a  draft  or  negotiable  paper,  which,  by  law,  is  due  on  a  certain 
day.     It  is  his  duty  to  present   the  paper  for  payment  on  that 

1  Lamberton  v.  Windom,  12  Minn.  3  Hanna  v.  Holton,  78  Pa.  St.  334, 
232,  247,  per  McMillan,  J.  per  Agnew,  J. ;    Lyon  v.  Huntingdon 

2  Whitin  V.  Paul,  13  R.  I.  40  ;  Bank,^  12  S.  &  R.  (Pa.)  61,  68,  per 
Wakeman  v.  Gowdy,  10  Bosw.  (N.  Tilghnian,  C.  J.  ;  Beale  v.  Bank,  5 
Y.)    208;    Slevin    v.   Morrow,  4  Ind.  Watts  (Pa.),  529. 

425;  Lyon  v.   Huntingdon  Bank,   12         ^  Betterton  t'.  Roope,  3  Lea  (Tenn.), 
S.   &  R.  (Pa.)  61;  Hoard  v.  Garner,     215;    Smith  v.  Miller,  43  N.  Y.  171; 
10   N.  Y.   261;  Williams  v.  Price,  1     S.  C.  3  Am.  Rep.  690. 
S.  &  St.  581 ;  Mure,  ex  parte,  2  Cox, 
63. 

514 


DILIGENCE   IN   COLLECTING   COLLATERAL  PAPER.       [§§  695,  696. 

day,  and,  as  he  has  the  indorsement  of  his  debtor  on-  the  paper, 
he  ought  probably  to  give  him  notice  of  the  faihire  to  pay ;  cer- 
tainly so  if  he  seeks  to  hold  him  on  the  paper  or  his  indorsement. 
The  question  of  notice  to  the  indorsing  debtor  in  this  case  is  not, 
however,  material.  The  question  is  whether  there  was  a  neglect 
of  duty  on  the  part  of  the  creditor  receiving  the  draft,  by  reason 
of  which  the  debtor  has  been  injured.  That  this  is  true  is  beyond 
question.  If  the  creditor  had  received  of  his  debtor  a  check 
and  failed  to  present  it,  the  principle  would  have  been  the  same 
precisely."  ^ 

695.  A  pledgor  is  not  entitled  to  strict  notice  of  the  dis- 
honor of  a  collateral  note,  which  he  has  not  indorsed,  but  has 
delivered  without  indorsement,  or  has  caused  to  be  made  payable 
directly  to  his  pledgee.^  Although  the  pledgor  in  such  case  con- 
tinues liable  for  his  own  debt  in  the  event  of  a  failure  of  the 
maker  of  the  collateral  note  to  pay  it,  yet  he  is  not,  within  the 
custom  of  merchants,  an  indorser  of  it,  so  as  to  be  entitled  to 
strict  regular  notice  of  non-payment.  He  is  not  subject  to  the 
obligations  nor  entitled  to  the  advantages  which  belong  to  a 
party  to  negotiable  paper.  He  stands  rather  in  the  position  of 
a  guarantor.  His  original  liability  remains  as  it  was  ;  and  he  can 
avail  himself  of  the  negligence  of  the  pledgee  to  give  him  notice 
of  the  dishonor  of  the  collateral  note  only  to  the  extent  of  the 
loss  he  may  have  suffered  thereby.  If  he  has  suffered  no  loss 
by  reason  of  delay  or  failure  to  receive  notice  of  the  dishonor  of 
the  collateral  paper,  he  cannot  avail  himself  of  this  as  a  defence 
to  his  liability  to  his  creditor. 

696.  The  collateral  security  should  be  in  hand  in  making 
demand  upon  the  maker  of  a  note  in  order  to  charge  an  indorser  ; 
for  it  may  be  essential  to  have  the  collaterals  deposited  as  security 
for  the  note  in  readiness  to  deliver  up  at  the  time,  if  the  maker 
demands  them.  Thus,  a  demand  by  a  notary  upon  the  maker  of 
a  note  which  contains  a  statement  that  certain  negotiable  bonds 
had  been  deposited  as  collateral  security  is  insufficient  to  charge 
an  indorser,  if  the  maker  at  the  time  of  the  demand  asks  for  a 
return  of  the  collaterals,  and  states  that  he  is  ready  and  willing 

1  Bettcrton  V.  Roope,  3  Lea  (Tenn.),  ^  Chitty  on  Bills,  441,  498;  Hunter 
215,  per  Freeman,  J.  v.  Moul,  98  Pa.  St.  13. 

615 


§§  697-700.]      REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

to  pay  the  note  on  production  of  the  collaterals,  and  refuses  to 
pay  solely  on  the  ground  that  they  are  not  produced.  It  is  as 
much  the  right  of  the  maker  to  receive  the  collaterals  upon  the 
payment  of  the  note,  as  it  is  to  receive  a  surrender  of  the  note 
itself ;  and  it  would  be  unreasonable  to  require  him  to  pay  such 
a  note  in  the  absence  of  the  collaterals,  and  trust  to  his  legal 
remedies  against  the  holder  to  recover  them.^ 

697.  The  neglect  or  omission  of  an  officer  of  government, 
who  has  received  a  note  as  collateral  security  for  a  debt  due 
the  state,  to  perform  the  duties  which  the  law,  in  ordinary  cases, 
imposes  upon  a  party  so  receiving  a  note,  cannot  be  taken 
advantage  of  by  the  debtor.  And  it  would  seem  that  even  if 
the  officer  expressly  assumed  the  responsibility  of  prosecuting 
such  note  to  judgment,  the  state  would  not  be  responsible  for 
his  laches. 2 

698.  The  character  of  the  transaction  is  a  question  of 
fact  for  the  jury  when  the  circumstances  of  the  case  leave 
it  in  doubt  whether  a  note  was  deposited  as  collateral  security 
or  merely  for  the  convenience  of  the  owner;  as,  for  instance, 
where  a  note  was  payable  in  metal,  and  the  owner  left  it  in  care 
of  a  creditor,  and  the  owner  contended  that  the  note  was  de- 
posited as  collateral  security ;  but  the  creditor  claimed  that  he 
received  it  merely  for  the  owner's  convenience,  that  the  metal  in 
which  it  was  payable  might  be  received  by  him  and  accounted 
for  by  credit  on  book  account.^ 

699.  The  insolvency  of  the  maker  of  the  collateral  note 
has  been  held  not  to  dispense  with  a  demand  of  payment 
within  a  reasonable  time,  for  the  reason  that  the  maker  may  pay 
this  particular  debt,  although  he  is  unable  to  pay  all  his  debts, 
or  is  without  visible  property.^ 

700.  What  constitutes  negligence  in  the  collection  of 
such  collateral  security  is  a  question  of  fact  to  be  determined 

1  Ocean    Nat.   Bank   of    N.  Y.   v.  »  Sellers  v.  Jones,  22  Pa.  St.  423. 
Eant,  50  N.  Y.  474.  *  Stocking    v.     Conway,     1    Port. 

2  Seymour  v.  Van   Slyck,  8  Wend.  (Ala.),  260, 
(N.  Y.)  403. 

516 


DILIGENCE  IN   COLLECTING   COLLATERAL   PAPER.  [§  700. 

according  to  the  circumstances  of  the  case.^  Greater  dih'gence 
may  be  required  in  case  the  creditor  is  aware  that  the  maker  of 
the  collateral  paper  is  in  embarrassed  circumstances,  than  would 
be  required  in  case  the  maker  were  supposed  to  be  wholly  re- 
sponsible.2  A  delay  to  collect  which  would  amount  to  negligence 
in  the  former  case,  might  not  be  so  in  the  latter.  Diligence 
which  is  reasonable  under  the  circumstances  of  the  case,  and  not 
extraordinary  diligence,  is  wbat  is  required.^  Ordinary  care  and 
diligence  must  be  used,*  and  the  circumstances  of  the  case  are 
to  be  considered  in  determining  the  extent  of  this  responsibility. 
This  responsibility  is  not  determined  by  the  strict  rules  of  com- 
mercial law  applicable  to  negotiable  paper ;  but  rather  by  the 
principles  of  the  general  law  of  agency.^ 

Negligence  of  the  creditor  in  collecting  collateral  security  may 
be  taken  advantage  of  by  the  surety  of  the  principal  debt  as  well 
as  by  the  principal  debtor  himself,^  but  a  general  creditor  can- 
not complain.'^  The  creditor's  obligation  to  collect  the  collateral 
ceases  upon  the  payment  to  him  of  the  principal  debt.  It  is  his 
duty  then  to  return  the  collateral  to  his  debtor.^ 

A  creditor  holding  negotiable  paper  as  collateral  security  is 
required  to  use  a  different  kind  of  diligence  from  that  required 
of  one  holding  merchandise  or  other  corporeal  property  ;  and  yet 
the  diligence  in  each  case  is  only  such  as  is  appropriate  to  the 
nature  of  the  property.     If  the  property  be  precious  stones,  safe 

1  Word?;. Morgan,  5  Sneed(Tenn.),  Ann.  344.  "  The  duty  of  a  pledgee 
79  ;  Bufkingliam  v.  Payne,  36  Barb,  cannot  be  considered  as  more  onerous 
(N.  Y.),  81  ;  Sellers  v.  Jones,  22  Pa.  and  stringent  than  that  of  an  agent; 
St.  423;  Davis  v.  Alston,  61  Ga.  225.  and  the  law  is  well  settled  that  where, 
But  it  is  sometimes  said  that  the  de-  in  the  course  and  from  the  nature  of 
gree  of  diligence  required  under  the  the  business,  it  becomes  necessary  to 
cii'cumstances  of  the  case  is  a  ques-  employ  sub-agents,  by  reason  of  their 
tion  of  law.  Wakeman  v.  Gowdy,  10  particular  profession  or  skill,  the  agent 
Bosw.  (N.  Y.)  208.  will  not,  in  such  cases,  be  responsible 

2  Slevin  v.  IMorrow,  4  Ind.  425.  for  the   negligence   or  misconduct  of 
2  Slevin  r.  Morrow,  supra;  Kiser  v.     the   sub-agent,  if  he  has  used  reason- 

Ruddick,  8  Blackf.  (Ind.)  382;  Whitin  able  diligence  in  his  choice  as  to  the 

V.  Paul,  13  R.  I.  40.  skill   and    ability  of   the    sub-agent." 

4  Roberts  v.  Thomson,  14  Ohio  St.  Per  Slidell,  J. 
1  ;  Whitin  v.  Paul,  supra.    So  by  stat-         ^  Hoffman     v.    Johnson,    1    Bland 

ute   in  Georgia,  Code  1873,  §  2145;  (Md.),  103. 
Cardin  v.  .Jones,  23  Ga.  175.  "<  Dyott's   Estate,   2  W.  &  S.  (Pa.) 

^   Roberts     v.     Thompson,     supra;  463. 
Commercial  Bank,    i'.    Martin,  1    La.  »  Qverlock  v.  Hills,  8  Me.  383. 


O 


17 


§§  701,  702.]      REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

keeping  is  all  that  is  required.  If  it  be  grain,  it  must  be  prop- 
erly stored  and  protected  from  all  injury.  The  diligence  required 
of  the  holder  of  promissory  notes  or  other  securities  for  the  pay- 
ment of  money  has  reference  to  the  danger  that  the  parties  liable 
on  them  may  become  insolvent  and  unable  to  pay.  A  prudent 
business  man  will  collect  such  obligations  when  they  are  due,  or 
will  endeavor  to  enforce  them  by  suit ;  if,  therefore,  a  creditor 
neglects  to  enforce  the  collection  of  such  securities  held  in  pledge, 
and  delays  till  the  parties  liable  become  insolvent,  he  is  as  much 
guilty  of  neglect  as  if  he  had  suffered  grain  held  in  pledge  to  be 
destroyed  by  dampness  or  heat  for  lack  of  proper  storage. ^ 

Negligence  which  will  discharge  the  drawer  or  indorser  of  a 
bill  of  exchange  will  make  one  who  holds  it  as  collateral  security 
liable  for  the  loss. 

701.  Whether  the  creditor's  negligence  conclusively  makes 
him  liable,  as,  for  instance,  whether  his  failure  to  protest  a  note 
for  non-payment  at  maturity  so  as  to  charge  an  indorser  thereby 
conclusively  makes  the  paper  his  own,  or  whether  he  may  show 
that  bis  debtor  sustained  no  actual  damage  by  failure  to  charge 
the  indorser,  for  the  reason  that  the  indorser  was  insolvent  when 
the  paper  matured,  and  has  continued  so  up  to  the  time  of  trial,  — 
is  a  question  upon  which  the  authorities  are  not  agreed.  On  the 
one  hand,  it  is  claimed  that  to  allow  such  evidence  would  in- 
troduce an  element  of  uncertainty  as  to  the  rights  and  liabilities 
of  parties  to  negotiable  paper,  and  give  rise  to  much  needless 
litigation.  Moreover,  the  paper  may  be  valuable  to  the  pledgor 
by  way  of  set-off,  although  uncollectable  by  the  pledgee.  Upon 
this  ground,  it  is  held  in  Michigan  that  the  creditor  is  in  every 
case  chargeable  with  the  amount  of  the  note.^ 

702.  On  the  other  hand,  it  is  held  that  actual  loss  or 
prejudice  to  the  pledgor  is  the  criterion  of  the  pledgee's  lia- 
bility for  failure  to  charge  the  indorser,^  or  for  negligence  in 
prosecuting  the   collection   of   the   collateral.     Mere  neglect  on 

1  Hazard  v.  Wells,  2  Abb.  (N.  Y.)  dissenting ;  Phoenix  Ins.  Co.  v.  Allen, 
N.  C.  444,  per  Smith,  J.  11  lb.  501. 

2  Whitten  v.  Wright,  34  Mich.  92  ;  «  Story  on  Notes,  §  405;  Chitty  on 
Rose  tJ.  Lewis,  10  lb.  483,  485;  Jenni-  Bills,  441,  498;  2  Parsons  on  Bills 
son  D.  Parker,  7  lb.  355,  Campbell,  J.,  and  Notes,  184;   Cumber  u.  Wane,   1 

518 


DILIGENCE  IN   COLLECTING   COLLATERAL   PAPER.  [§  702. 

the  part  of  the  creditor  in  collecting  the  securities,  without  proof 
that  loss  has  occurred  through  such  neglect,  will  not  make  the 
securities  his  own.i  In  Kephart  v.  Butcher,^  Judge  Dillon,  after 
examining  the  conflicting  authorities  upon  this  question,  said  it 
was  one  difficult  of  determination  upon  authority,  but  easy  of 
solution  upon  reason  and  principle,  and  declared  the  opinion  of 
the  court  to  be  that  the  better  and  true  rule  and  criterion  are 
actual  loss  or  prejudice ;  and  consequently  the  creditor  who  has 
taken  the  note  of  a  third  person  for  a  preexisting  debt  is  not 
debarred  from  resorting  to  the  original  consideration,  although 
he  has  not  presented  the  instrument  nor  given  notice  of  its  dis- 
honor, provided  he  can  clearly  and  satisfactorily  show  that  the 
debtor  has  not,  in  consequence  of  such  omission,  sustained  any 
injury. 

It  would  seem  that,  in  order  to  hold  the  creditor  liable  for 
negligence  or  delay  in  enforcing  the  collateral  note,  it  should  be 
made  to  appear  that  the  maker  of  that  note  was  solvent  at  the 
time  it  matured,  and  afterwards  became  insolvent.^  "  There  is 
a  distinction  taken  between  the  liability  of  a  creditor  to  a  princi- 
pal debtor  for  negligently  failing  to  collect  collateral  securities 
pledged  by  such  debtor,  and  the  liability  of  a  creditor  to  a  surety 
for  neglecting  to  proceed  against  a  principal.  We  can,  however, 
conceive  of  no  reason  why  the  rule,  which  in  the  latter  case  re- 
quires that,  in  order  that  the  creditor  be  held  liable,  the  principal 
debtor  should  be  solvent  at  the  time  when  the  surety  requests 
the  creditor  to  proceed  against  him,  should  not  apply  in  principle 
in  the  former  case.     In  the  case  of  Herrick  v.  Borst,*  it  is  said. 

Smith's  Lead.  Cas.  8th  Eng.  ed.  357;  519;   Aldrich  v.  Goodell,  75  111.  452; 

Chaniberlyn   v.    Delarive,   2    Wilson,  Steger  v.  Bush,   S.  &  M.  (Miss.)   Ch. 

353;  Wardu.  Evans,  2Ld.  Raym.  928;  172,    189.      "Something    more    than 

Van  Wart  v.  Woolley,  3  Barn.  &  C.  mere  delay  is  necessary  in  such  cases ; 

439 ;  Peacock  v.  Pursell,  14  C.  B.  (N.  because  mere  delay,  i£  no  loss  followed 

S.)   728;   Clark  v.  Young,  1   Cranch,  as  a  consequence   thereof,  could    not 

181;  Kephart    v.  Butcher,   17    Iowa,  be  made  the  foundation  of  any  com- 

240;   Powell  v.  Henry,   27  Ala.   612.  plaint  on  the  one  hand  or  of  responsi- 

See  dissenting  opinion  of  Campbell,  J.,  bility  on  the  other."     Per  Buckner, 

in  Jennison   v.  Parker,   7  Mich.  361;  Chancellor. 

Grove  V.  Roberts,  6  La.    Ann.  210;  2^7  lo^a,  240. 

Hunter  u.  Moul,  98  Pa.  St.  13 ;  Hanna  ^  Lamberton  v.  Windom,  18  Minn. 

V.  Ilolton,  78  Pa.  St.  334;   Westphal  606,  514;  S.  C.  12  lb.  232;  Westphal 

V.  Ludlow  (C.  C.  D.  Minn.  1881),  6  v.  Ludlow,  supra. 

Fed.  Rep.  348.  ■»  4  Hill  (N.  Y.),  650,  653. 
1  Gilbertj;.  Marsh,  12  IIun(N.Y.), 

519 


§  703.]      BEMEDIES   UPON   PLEDGES    OF   NEGOTIABLE   PAPER. 

'  The  question  to  be  decided  is,  whether  under  our  rule  for  the 
protection  of  sureties  a  jury  should  be  allowed  to  speculate  on 
the  event,  and  bar  the  creditor  accordingly,  as  they  may  guess 
that  the  suit  against  the  principal  would  have  been  successful  or 
not.  I  understand  the  rule  to  be,  not  that  the  jury  can  appraise 
the  possibility,  and  relieve  the  surety  in  proportion  to  the  value 
of  the  chance,  but  that  if  the  principal  was  solvent  when  the 
notice  was  given,  and  the  neglect  to  sue  be  followed  by  subse- 
quent insolvency,  the  whole  action  is  barred.'  It  seems  to  us  that 
these  reasons  for  making  the  solvency  of  the  principal  necessary 
to  the  creditor's  responsibility  to  the  surety  apply  with  equal 
force  in  a  case  like  this  at  bar.  There  is  the  same  danger  and 
impropriety  in  the  latter  as  in  the  former,  in  permitting  a  jury 
to  speculate  upon  the  chances  of  success  in  collecting  a  debt  of  a 
person  who  is  not  solvent;  a  person,  according  to  the  definition 
given  in  the  case  cited,  who  is  not  able  to  pay  all  his  debts  from 
his  own  means,  or  whose  property  is  not  in  such  a  situation  that 
all  his  debts  may  be  collected  out  of  it  by  legal  process.  To 
make  the  liability  of  the  creditor  depend  upon  his  ability  to  col- 
lect from  a  person  in  this  condition  would  be,  it  seems  to  us,  to 
ingraft  an  element  upon  commercial  law  altogether  inconsistent 
with  its  characteristic  and  necessary  certainty."  ^ 

If  the  debtor  has  in  his  hands  good  security  for  the  payment 
of  the  collateral  note,  he  cannot  be  prejudiced  by  the  failure  of 
the  pledgee  to  protest  the  note,  and  in  that  case  the  pledgee  can- 
not be  held  liable  for  his  neglect.^ 

703.  If  it  appears  that  upon  the  maturity  of  the  collateral 
note  it  could  not  have  been  collected  except  b}^  the  exercise 
of  extraordinary  diligence,  or  if  a  suit  brought  upon  it  as  soon 
as  it  matured,  and  prosecuted  with  reasonable  diligence  to  judg- 
ment and  execution,  would  not  have  resulted  in  the  collection  of 
the  note,  in  the  absence  of  a  demand  by  the  debtor  that  such  a 
suit  be  brought,  the  creditor  in  a  suit  upon  the  principal  debt 
will  not  be  prevented  from  recovering  because  he  did  not  attempt 
to  collect  the  collateral.^ 

1  Lamberton  v.  Windom,  18  Minn.  ^  Marschuetz  v.  Wriglit,  50  Wis. 
506,515,  per  Berry,  J.  175;   Westphal  v.  Ludlow  (C.  CD. 

2  Kephart  v.  Butcher,  17  Iowa,  240.     Minn.  1881),  6  Fed.  Rep.  348. 

520 


DILIGENCE   IN   COLLECTING   COLLATERAL   PAPER.       [§§  704-706. 

704.  If  the  pledgor  desires  a  prompt  collection  of  the  col- 
lateral, he  should  demand  this  ;  and  unless  he  do  this  the 
pledgee  is  not  bound  to  act  immediately  upon  the  maturity  of 
the  principal  debt,  but  only  to  exercise  ordinary  diligence  and  a 
reasonable  discretion  in  the  matter.^ 

705.  The  burden  is  upon  the  debtor  to  show  that  the  cred- 
itor has,  by  his  negligence  in  collecting  the  collateral  security,  oc- 
casioned a  loss.^  When  Si  primd  facie  case  of  negligence  in  the 
creditor  is  shown,  the  burden  is  then  cast  upon  him  to  show  some 
excuse  for  his  failure  to  collect  the  security.  Such  2i  ])rimd  faeie 
case  is  made  out  by  proof  that  the  creditor,  to  whom  a  loss  upon 
a  policy  of  insurance  was  payable,  neglected,  for  a  month  after 
the  loss  was  adjusted  and  payable,  to  collect  the  amount,  during 
which  time  the  insurer  was  able  and  willing  to  pay,  but  after- 
wards became  insolvent,  and  most  of  the  insurance  money  was 
lost.3 

706.  Delay  by  a  creditor  to  bring  suit  upon  the  collateral 
for  three  months  may  make  him  liable  for  a  loss  occurring  mean- 
while, through  the  insolvency  of  the  parties  liable  upon  it ;  and 
it  is  no  excuse  for  such  delay  that  a  defence  to  the  collateral  ob- 
ligation is  threatened.*  Neither  is  it  any  excuse  that  the  maker 
of  such  collateral  resides  in  another  state. ^ 

But  a  delay  for  five  months  to  collect  a  note  payable  on  de- 
mand, taken  as  collateral  security  for  a  debt  payable  on  demand, 
was  held  not  to  make  the  creditor  chargeable  with  a  loss  occur- 
ring through  the  insolvency  of  the  maker  of  the  collateral  note, 
where  the  maker  was  supposed  to  have  ample  property  and  not 
to  be  embarrassed,  and  the  debtor  had  not  requested  his  creditor 
to  collect  the  note.^ 

1  Cherry  v.  Miller,  7  Lea  (Tenn.),  3  Charter  Oak  Life  Ins.  Co.  v. 
305.  Smith,  43  Wis.  329. 

2  Girard  F.  &  M.  Ins.  Co.  v.  Marr,  *  Wakeman  v.  Gowdy,  10  Bosw. 
46  Pa.  St.  504;  Sellers  v.  Jones,  22  (N.  Y.)  208. 

lb.  423;  Covely  v.  Fox,  11   lb.  171;         ^  Burt  v.  Horner,  5  Barb.  (N.  Y.) 
Vose  V.  Yulee,  4  Hun  (IST.  Y.),  628;     501.     See,  however,  Noland  v.  Clark, 
Dugan  V.  Sprague,  2  Ind.  600;  Kiser     10  B.  INIon.  (Ky.)  239. 
V.  Ruddick,  8  Blackf.  (Ind.)  382.  «  Goodall  v.  llichardson,  14  N.  H. 

567. 

621 


§§  707,  708.]       REMEDIES   UPON   PLEDGES    OF   NEGOTIABLE   PAPER. 

707.  Delay  with  debtor's  consent.  —  A  creditor  holding 
promissory  notes  as  collateral  security  is  not  liable  for  a  loss 
occasioned  by  his  delay  to  enforce  the  notes  until  the  maker  be- 
comes bankrupt,  if  such  delay  was  with  the  debtor's  consent.^ 
Neither  is  the  creditor  liable  to  account  for  collaterals  which  were 
never  placed  in  his  hands  or  under  his  control,  but  which  were 
placed  by  the  debtor  in  the  hands  of  a  third  person  appointed 
by  himself, 2  or  were  placed  by  the  debtor  in  the  hands  of  his  own 
lawyer  for  collection.^  Neither  is  the  creditor  bound,  after  his 
lien  has  been  discharged  by  payment  of  the  principal  debt,  to  do 
anything  further  about  collecting  the  collateral  note.  Such  pay- 
ment absolves  him  from  all  further  obligation  about  the  collat- 
eral except  to  return  it  to  the  debtor.* 

708.  Bad  faith  or  faulty  discretion  on  the  part  of  the 
pledgee,  in  the  course  taken  by  him  in  respect  to  the  collection 
of  the  collateral,  must  be  proved  in  order  to  make  him  liable  for 
any  loss  or  depreciation  that  ma}'  have  occurred  from  his  delay. 
In  a  case  where  the  collateral  was  a  mortgage  and  mortgage  note, 
and  the  pledgee  refrained  for  nine  months  from  proceeding  to 
enforce  it,  the  pledgee  having  exercised  good  faith  toward  the 
pledgor,  and  reasonable  judgment  in  collecting  the  mortgage,  he 
was  held  not  to  be  chargeable  with  the  collateral  as  a  payment 
upon  his  demand.^  Among  the  circumstances  adverted  to  by  the 
court,  as  showing  that  the  pledgee  was  not  under  the  necessity  of 
proceeding  sooner  to  enforce  the  collateral,  were  these  :  proceed- 
ings on  the  part  of  the  pledgee  were  pending  to  enforce  the 
principal  debt ;  the  maker  of  the  mortgage  note  had  no  property 
subject  to  attachment  or  execution,  and  the  mortgage  could  only 
be  enforced  by  strict  foreclosure,  which  would  have  given  the 
pledgee  land  and  not  money  ;  the  land  moreover  was  incumbered 
by  a  prior  mortgage,  which  the  pledgee  would  have  been  obliged 
to  redeem  in  order  to  hold  the  land,  which,  after  he  had  obtained, 
was  only  a  farm  of  inadequate  and  doubtful  value ;  and  the  ex- 

1  Runals  v.  Harding,  83  111.  75;  »  Noland  v.  Clark,  10  B.  Mon. 
Mitchell  V.  Levi,    28  La.  Ann.  946;     (Ky.)  239. 

Lee  V.  Baldwin,  10  Ga.  208;  and  see        *  Overlock  v.  Hills,  8  Me.  383. 
Brown  V.  Hiatt,  1  Dill.  372.  5  Wells  v.  Wells,  53  Vt.  1. 

2  Bank  of  tlie  United  States  v.  Pea- 
body,  20  Pa.  St.  454. 

522 


DILIGENCE   IN   COLLECTING   COLLATERAL   PAPER.        [§§  709-711. 

pense  of  the  foreclosure  would  have  to  be  met  by  the  pledgee  ; 
and  all  the  while  if  the  pledgor  had  desired  to  have  the  mortgage 
foreclosed,  he  had  the  right  to  take  proceedings  for  that  purpose 
on  his  own  behalf. 

709.  There  is  no  obligation  resting  upon  one  who  receives 
a  note  of  a  third  person  as  conditional  payment  to  bring 
suit  upon  it  if  it  be  not  paid  at  maturity.  Such  is  the  case 
when  a  note  is  transferred  for  property  purchased  on  an  agree- 
ment that  if  the  note  be  not  collected,  the  purchaser  is  to  make 
up  the  deficiency  to  the  seller.  If  the  note  be  not  paid  at  matu- 
rity, and  the  purchaser  wishes  to  have  suit  brought  upon  it,  he 
may  at  any  time  pay  the  amount  of  the  dishonored  note,  and 
take  his  own  course  for  its  collection. ^ 

710.  A  pledgee  of  a  judgment  may  be  liable  for  a  loss 
occurring  through  his  negligence  in  permitting  the  lien  to 
expire.  —  Such  would  be  the  case  if  it  was  within  his  power  to 
continue  or  revive  the  lien,  and  the  judgment  was  collectible,  and 
the  judgment  debt  afterwards  becomes  worthless  through  the  in- 
solvency of  the  judgment  debtor.^ 

One  holding  an  assignment  of  a  judgment  as  collateral  security 
is  not  bound  to  collect  it  before  the  principal  debt  has  become 
due,  unless  he  has  expressly  agreed  to  do  so.  Therefore  where  a 
judgment  was  assigned,  as  security  for  the  payment  of  certain 
notes,  by  a  written  assignment  giving  authority  to  the  pledgee 
to  sell  it  in  case  the  notes  should  not  be  paid  at  maturity,  and 
there  was  no  provision  in  the  assignment  for  the  collection  of  the 
judgment  before  that  time,  it  was  held  that  evidence  was  not  ad- 
missible to  show  a  parol  agreement,  made  at  the  time  of  the 
transaction,  and  as  a  part  of  it,  that  the  pledgee  should  issue 
execution  and  collect  the  judgment  whenever  the  money  could 
be  made  thereon.  A  loss  by  failure  to  collect  the  judgment  be- 
fore the  maturity  of  the  notes  secured,  wlien  the  judgment  debtor 
had  property  subject  to  execution  sufficient  to  satisfy  it,  conse- 
quently fell  upon  the  pledgor.^ 

711.  A  surety  of  the  debt  has  the  right  to  exact  of  the  cred- 

1  Dod^'e  V.  Stanton,  12  Mich.  408;         »  Hanna  v.  Holton,  78  Pa.  St.  334. 
Hicc  V.  Benedict,  19  Mich.  132.  «  Bast  v.  Bank,  101  U.  S.  93. 

623 


§  712.]      REMEDIES   UPON   PLEDGES   OF   NEGOTIABLE  PAPER. 

itor  proper  care  and  diligence  in  the  collection  of  collateral 
security  deposited  with  the  creditor  by  the  debtor  ;  and  want  of 
diligence  in  this  respect  on  the  part  of  the  creditor  operates  to 
release  the  surety  to  the  amount  of  the  loss  actually  sustained. 
The  creditor  in  such  case  is  regarded  in  the  light  of  a  trustee  for 
the  surety  of  the  property  pledged.^ 

If,  however,  such  security  be  confided  to  a  trustee,  who  is  the 
common  agent  of  both  the  debtor  and  the  creditor,  the  latter 
cannot  be  charged  as  the  bailee  of  the  trust  property .^  But  if 
he  connives  at  any  mismanagement  of  the  property  by  the 
trustee,  he  may  be  held  responsible  for  the  result  of  such  mis- 
management.^ 

If  a  pledgee  sell  the  debt  secured  and  assign  the  collateral 
note,  and  the  assignee  allows  such  note  to  become  barred  by  the 
statute  of  limitations,  he  cannot  afterwards  recover  of  the  payee 
as  indorser  of  such  note.* 

712.  A  creditor  is  in  equity  entitled  to  the  benefit  of  col- 
lateral security  given  by  his  debtor  to  a  surety  for  the  hitter's 
indemnity  ;  ^  and  under  some  circumstances  he  may  have  the 
benefit  of  such  security  even  after  the  surety's  discharge.  Thus, 
the  maker  of  a  promissory  note  having  given  a  judgment  bond  to 
an  indorser  to  indemnify  him,  the  note  was  protested  at  maturity 
for  non-payment,  but  due  notice  not  being  given  to  the  indorser, 
he  was  discharged.  The  indorser,  however,  afterwards  assigned 
the  judgment  to  the  holder  of  the  note,  in  consideration  of  being 
released  from  all  responsibility  on  his  indorsement.  This  assign- 
ment was  held  to  be  a  waiver  of  want  of  due  notice,  and  tanta- 
mount to  a  promise  to  pay ;  and  it  was  further  held  that  a  sub- 
sequent mortgagee  or  judgment  creditor  had  no  equity  to  allege 
against  such  a  waiver  of  want  of  notice  in  order  to  avoid  the 
judgment  so  given  for  the  indemnity  of  the  indorser.^ 

1  Hall  V.  Hoxsey,  84  111.  616,  per  5  Curtis  v.  Tyler,  9  Paige  (N.  Y.), 
Craig,  J.;  Murrell  v.  Scott,  51  Tex.  432;  Evertson  v.  Booth,  19  Johns. 
520.  (N.  Y.)  486;  Moses  v.  Murgatroyd,  1 

2  Bank  of  the  United  States  v.  Johns.  (N.  Y.)  Ch.  119,  129.  See  §§ 
Peabody,  20  Pa.  St.  454.  523-533. 

3  Murrell  v.  Scott,  supra.  e  phiHips   ,,.   Thompson,    2   Johns. 
*  Fennell  v.   McGowan,    58   Miss.     (N.  Y.)  Ch.  418. 

261. 

524 


DILIGENCE   IN   COLLECTING   COLLATERAL   PAPER.         [§  713. 

713.  A  creditor  to  whom  a  mortgage,  or  judgment,  or  other 
claim  has  been  ass.igned  as  collateral  security  is  in  like  man- 
ner chargeable  for  a  loss  ha23pening  through  his  neglect  to  col- 
lect it.^  Thus  it  would  seem  that  if  a  creditor  holding  a  mort- 
gage as  collateral  security  should  omit  for  an  unreasonable  length 
of  time,  after  its  maturity,  to  cause  proceedings  for  foreclosure  to 
be  commenced ;  or  if  he  should  employ  an  incompetent  solicitor 
to  commence  and  prosecute  them  ;  or  if  the  proceedings,  after 
being  commenced,  were  unduly  delayed  by  his  own  negligence  or 
that  of  his  solicitor,  —  he  would  be  liable  for  the  loss  so  happen- 
ing. Such  was  held  to  be  the  law  in  a  case  where  a  creditor, 
receiving  a  mortgage  of  a  third  person  to  collect  and  apply  to  his 
own  claim  and  to  pay  the  remainder  to  his  debtor,  covenanted 
expressly  "  to  take  proper  means  "  for  its  collection.  The  cred- 
itor, however,  delayed  for  several  months  after  the  maturity  of 
the  mortgage  to  commence  proceedings  to  foreclose  it,  and  then 
his  solicitor  delayed  for  some  years,  and  much  longer  than  was 
necessary,  to  bring  the  case  to  a  hearing  and  to  obtain  a  decree. 
In  the  Superior  Court,^  Judge  Sandford  said  :  "  The  retainer  of 
a  competent  sohcitor  was  undoubtedly  a  proper  step  to  be  taken, 
and,  as  far  as  it  went,  was  a  compliance  with  the  contract.  But 
the  responsibility  did  not  cease  there  ;  and  if  the  solicitor  failed 
to  pursue  the  proper  means  for  collecting  the  securities,  the  de- 
fendant must  answer  for  his  default.  It  was  contended  that 
proper  means  were  taken  in  this  case ;  that  the  long  delay  which 
occurred  was  the  result  of  no  oversight  on  the  part  of  the  solicitor 
employed  ;  in  his  judgment,  it  was  inexpedient  to  proceed  under 
the  circumstances  ;  and  his  course  was  the  true  one.  The  good 
faith  of  the  solicitor  is  not  impeached.  This,  however,  did  not 
satisfy  the  covenant  ;  nor  did  the  exercise  of  his  judgment,  if  that 
judgment  were  wrong  and  caused  unreasonable  delay.  We  have 
considered  the  question  with  more  than  usual  care  and  delibera- 
tion, and  we  cannot  resist  the  conclusion  that  the  course  pursued 
by  the  solicitor  was  unwise,  and,  in  respect  to  the  defendant's 
duty  to  the  plaintiff,  was  entirely  unwarrantable."  This  judg- 
ment was  affirmed  in  the  Court  of  Appeals.^ 

1  Beale   v.   Bank,   5  Watts    (Pa.),  Bank    of   Wellsburg  v.  Kiinberlands, 

529;  Ilanna  v.  Ilolton,  78  Pa,  St.  3:}4;  lb.  S.'iS. 

Miller  V.  Gettysburg  Bank,   8  AVatts         ^  Hoard  v.  Garner,  3  Sandf.  (N.  Y.) 

(Pa.),   192;    Whitteker  v.  Charleston  179,  1S9. 
Gas  Co.  IG    W.   Va.   717;  First  Nat.         »  Hoard  v.  Garner,  10  N.  Y.  2G1. 

625 


§  714.]      REMEDIES   UPON   PLEDGES   OF  NEGOTIABLE  PAPER. 

Although  this  decision  ^vas  upon  a  covenant  to  use  proper 
means  to  collect  the  mortgage,  it  is  conceived  that  there  is  a  cov- 
enant just  to  this  effect  implied  in  the  taking  of  a  mortgage  as 
collateral  security,  and  that  the  decision  is  applicable  to  such  a 
case. 

714.  A  pledgee  is  bound  to  use  reasonable  diligence  in 
collecting  the  interest  due  on  a  mortgage  assigned  as  collat- 
eral, but  he  is  not  responsible  for  the  principal  as  well  as  for 
the  interest,  when  the  principal  has  not  fallen  due,  although  the 
mortgage  contains  a  power  of  sale  under  which  the  holder  is  era- 
powered  to  sell  upon  any  default  in  the  payment  of  interest,  and 
in  case  of  such  sale  the  principal  is  then  made  due  and  payable 
on  the  day  of  such  sale.  Under  such  a  mortgage  the  principal 
does  not  fall  due  so  soon  as  the  interest  is  in  arrear,  bat  only 
upon  a  sale  for  non-payment  of  interest.  The  only  neglect  of 
which  the  pledgee  is  guilty  in  such  case,  is  neglect  to  collect  the 
interest.  If  the  pledgee  had  collected  the  interest  without  selling 
under  the  power,  as  cheaply  and  as  speedily  as  he  could  have 
collected  it  by  selling,  the  pledgor  would  have  no  ground  of 
complaint.  Moreover,  if  the  pledgor  had  credited  upon  the 
principal  debt  the  interest  due  upon  the  collateral  mortgage,  tak- 
ing upon  himself  tlie  hazard  of  its  subsequent  collection,  the 
pledgor  would  have  had  no  ground  of  complaint.^  Chief  Justice 
Durfee,  delivering  the  opinion  of  the  court,  further  said  :  "  It  is 
true  she  might,  the  interest  being  in  arrear,  have  sold  under  the 
mortgages,  and  so  made  the  principal  paj'able,  and,  according  to 
the  testimony,  it  would  have  been  greatly  to  the  advantage  of 
both  herself  and  the  complainant  for  her  to  have  done  so.  But 
in  our  opinion  it  was  not  her  duty  to  do  so  for  any  other  purpose 
than  to  collect  the  interest,  and  therefore  she  is  responsible  only 
for  the  interest  which  was  lost  by  her  neglect.  She  had  a  right 
to  suppose  that  the  complainant  was  willing  to  let  the  principal 
run  to  its  maturity,  so  long  as  the  interest  was  paid  or  accounted 
for,  the  complainant  having  agreed  to  sucli  a  term  of  credit,  the 
interest  being  paid.  For  a  like  reason,  she  had  a  right  to  sup- 
pose that  the  complainant  was  satisfied  with  the  sufficiency  of  the 
security,  as  security  for  the  principal,  and  that,  until  the  maturity 
of  the  notes,  she  was  only  bound  to  collect  the  interest,  or  to  be 

1  Whitin  V.  Paul,  13  R.  I.  40,  43. 
526 


DILIGENCE  IN   COLLECTING   COLLATERAL   PAPER.       [§§  715,  716. 

responsible  for  it  if  not  collected.  It  would  be  exacting  too 
much  of  a  pledgee  with  power  to  sell  to  hold  that  it  is  his  duty 
to  watch  the  market,  and  take  advantage  of  the  most  favorable 
opportunities  for  selling,  or  make  good  any  loss  resulting  from 
not  doing  it." 

The  pledgor's  request  in  such  case  that  the  pledgee  shall  col- 
lect the  interest,  though  coupled  with  the  statement  that  it  is 
the  duty  of  the  pledgee,  if  the  mterest  is  not  paid,  to  "enforce 
the  terms  of  the  mortgage,"  does  not  make  it  the  pledgee's  duty 
to  foreclose  for  any  other  purpose  than  the  collection  of  the  in- 
terest. If  he  had  wished  to  have  the  mortgage  foreclosed  by 
sale,  to  avoid  an  impending  loss  by  depreciation  in  the  value  of 
the  property,  he  should  have  said  as  much.  "  He  could  not  rea- 
sonably expect  the  pledgee  to  forecast  the  future  for  him."  He 
is  not  bound  to  exercise  extraordinary  care  and  diligence,  and 
collect  the  principal  without  request  before  it  is  legally  due.^ 

715.  Return  of  execution  unsatisfied.  —  The  creditor  having 
brought  suit  upon  the  collateral  obligation  within  a  reasonable 
time,  and  prosecuted  this  to  judgment  and  obtained  execution 
thereon,  upon  a  return  of  nulla  bona  upon  the  execution,  is  not 
ordinarily  bound  to  do  more  with  the  claim  ;  unless  it  be  to 
prove  it  in  proceedings  in  bankruptcy  or  insolvency,  if  such  pro- 
ceedings be  instituted.^ 

716.  The  pledgee  has  no  right  to  compromise  with  the 
maker  of  the  collateral  note,  and  take  less  than  the  amount  due 
upon  it,  unless  he  has  the  pledgor's  consent.  This  is  certainly 
the  case  when  the  debt  is  well  secured  by  mortgage.^  It  would 
only  be  in  an  extreme  and  exceptional  case  that  the  pledgee  would 
be  justified  in  making  such  a  compromise.  Authority  given  to  a 
pledgee  to  sell  the  collateral  note  at  public  or  private  sale  does 
not  authorize  him  to  surrender  such  note  to  the  maker  after  ma- 
turity, without  any  effort  to  collect  the  same,  for  a  sum  less  than 
the  amount  due  thereon,  though  this  be  enough  to  pay  the  prin- 
cipal debt.     Such  a  transaction  is  not  a  sale  of  the  note  but  a 

1  Whitin  V.  Paul,  13  R.  L  40.  458;  Garlick  v.  James,  12  Johns.  (N. 

2  Burnett  v.  Thompson,  1  Ala.  469.  Y.)    146  ;    Depuy    v.  Chirk,   12   Ind. 

3  Zinipleiuan  v.  Vofder,  98  111.  6i;3;  427. 
Union   Trust    Co.  v.  Kigdon,   93   111. 

627 


§  716.]      REMEDIES  UPON  PLEDGES  OF  NEGOTIABLE  PAPER. 

compromise  with  the  maker,  and  renders  the  pledgee  liable  to  the 
pledgor  for  the  injury  the  latter  has  sustained.^ 

One  who  has  taken  negotiable  paper  as  collateral  security  has 
no  right  to  compromise  with  the  parties  liable  upon  it  for  a  sum 
less  than  that  called  for  on  the  face  of  the  paper  ;2  except  per- 
haps in  a  very  extreme  case  ;  ^  or  if  he  does  so  compromise,  he 
makes  himself  accountable  for  the  whole  amount  of  the  security. 
Neither  has  he  any  right  to  surrender  the  security  to  the  maker 
upon  receiving  a  sum  of  money  equal  to  the  debt  for  which  the 
pledge  was  made,  and  another  note  for  the  remainder  of  the 
security;  and  the  pledgor  is  not  obliged  to  receive  the  new  note, 
or  to  await  the  collection  of  it  by  the  creditor,  but  may  maintain 
a  suit  for  the  full  amount  of  the  original  pledge,  after  deducting 
the  sum  for  which  the  pledge  was  made.*  If  the  pledgee  delivers 
up  the  original  note  received  as  security,  and  takes  any  other 
security  in  place  of  it,  he  will  be  assumed  to  have  received  pay- 
ment in  fuU.^ 

The  holder  of  collateral  paper  is  under  no  obligation  to  receive 
payment  thereof  in  property  other  than  money ;  and  he  is  not 
bound  to  notify  the  debtor  of  a  proposition  to  discharge  the  col- 
lateral note  in  this  way.^ 

Even  if  the  debtor  requests  the  creditor  to  accept  a  compro- 
mise of  the  collateral  security  by  taking  a  conveyance  of  land,  al- 
though the  compromise  proposed  be  a  reasonable  one  under  the 
circumstances,  the  creditor  does  not  make  himself  liable  for  any 
loss  sustained  through  his  refusal  to  accept  a  compromise.'^ 

A  comiDromise  of  the  collateral  note  made  with  the  consent  of 
the  principal  debtor  is,  of  course,  binding  upon  him.^ 

In  exceptional  cases  a  compromise  without  such  consent  may 
be  sustained ;  as  where  the  maker  of  the  collateral  note  is  in- 

1  Union  Trust  Co.  v.  Rigdon,  93  111.     and  see  Union  Trust  Co.  v.  Rigdon, 


458. 


supra. 


2  Garlick  v.  James,  12  Johns.   (N.  ^  Gage  r.  Punchard,  supra. 

Y.)  146;  Union  Trust  Co.  v.  Rigdon,  ^  j^j^^eg  j,,  M'Losky,  5  Stew.  &  P. 

supra;  S.  C.  9  Cent.  L.  J.  486;  Grant  (Ala.)  330. 

V.  Holden,  1   E.  D.  Smith  (N.   Y.),  ''  Rliinelander  v.  Barrow,  17  Johns. 

545;    Gage  v.  Punchard,  6  Daly  (N.  (N.   Y.)    538;    reversing    Barrow   v. 

Y.),  229.  Rhinelander,  3  Johns,  Ch.  614. 

3  As    intimated    in    Story's    Bail.  ^  Pence    v.    Gale,    20    Minn.    257. 
§  214.  Randoli)h  v.  Merchants'   Nat.   Bank, 

*  Depuy    V.    Clark,    12   Ind.   427  ;  9  Lea  (Tenn.),  63. 
628 


DILIGENCE   IN  COLLECTING   COLLATERAL   PAPER.       [§§  717,  718. 

solvent,  and  nothing  can  be  collected  by  process  of  law,  and  the 
compromise  effected  is,  on  the  whole,  advantageous  to  all  parties. ^ 

717.  A  pledgee  has  no  right  to  surrender  a  collateral  note 
to  the  maker  without  payment.  If  he  cannot  collect  it,  he 
must  return  it  to  the  pledgor.  If  he  surrenders  it  without  receiv- 
ing payment,  or  makes  use  of  it  in  any  transaction  of  his  own, 
he  is  chargeable  with  its  full  amount.^ 

But  a  pledgee  who  has  surrendered  the  collateral  note  to  the 
maker  of  it,  without  exacting  payment,  may  show  in  defence  that 
the  note  was  made  for  the  accommodation  of  the  pledgor,  or  was 
for  some  other  reason  invalid  against  the  maker.  The  presump- 
tion of  law  is,  however,  that  the  note  was  given  for  a  good  and 
valuable  consideration ;  and  unless  the  pledgee  shows  that  there 
was  a  legal  defence  to  the  note  surrendered,  he  is  liable  to  the 
pledgor  for  the  amount  thereof,  less  the  debt  secured.^  In  such 
action  against  the  pledgee  for  having  wrongfully  disposed  of  the 
pledge,  he  cannot  show  that  the  pledgor  was  indebted  to  the 
maker  of  the  collateral  note  both  at  the  time  of  the  pledge  and 
afterwards,  for  it  is  not  for  the  pledgee  to  claim  a  set-off  in  be- 
half of  the  maker  of  the  note  against  the  pledgor.  Neither  can 
the  pledgee  show  that  tlie  maker  of  the  collateral  note  was  in  the 
habit  of  giving  his  paper  to  the  pledgor  as  an  accommodation,  for 
evidence  to  this  effect  does  not  prove  that  this  particular  note 
was  given  as  accommodation  paper.* 

718.  A  creditor  holding  negotiable  paper  as  collateral 
security  has  an  undoubted  right  to  exchange  the  security, 
witliout  the  consent  of  the  debtor,  unless  restrained  by  the  express 
terms  of  the  pledge ;  and  it  is  only  in  case  loss  results  to  the 
debtor  from  want  of  proper  care  and  diligence  in  the  exchange, 
that  the  creditor  becomes  responsible  to  the  debtor  for  the  loss 
sustained.^  To  make  the  creditor  responsible  for  a  loss  arising 
from  an  exchange  of  collaterals,  it  must  be  shown  that  a  loss  was 
thereby  occasioned  to  the  pledgor.     Even  a  warning  given  by 

^  Exeter  Bank  v.  Gordon,  8  N.  II.  *  Union  Trust  Co.  v.  Rigdon,  supra. 

66.  ^  Giranl  Fire  &  Marine  his.  Co.  v. 

2  Wood  V.  Mattliews,  73  Mo.  477.  Marr,  4G  Pa.  St.  504  ;  Hunter  v.  Moid, 

'  Union    Trust    Co.  v.  Kigdon,  93  98  Pa.  St.  13;  llandul{)li  y.  Mereliants' 

111.  458.  Nat.  Bank,  9  Lea  (Tenn.),  63. 

34  529 


§  719.]      REMEDIES   UPON   PLEDGES   OF   NEGOTIABLE   PAPER. 

the  latter,  that  the  proposed  exchange  would  result  in  loss,  and 
that  the  creditor  would  make  it  at  his  own  risk,  and  would  take 
the  exchanged  collateral  as  cash,  does  not  of  itself  establish  a  loss 
by  reason  of  the  exchange,  although  the  substituted  collateral 
turns  out  to  be  wortliless.  There  must  be  evidence  that  the 
securities  given  up  were  not  also  worthless.  When  the  pledge 
has  been  made  on  no  other  terms  than  those  defined  by  law,  the 
debtor  cannot  afterwards  add  to  or  change  the  conditions  of  the 
pledge,  so  as  to  turn  the  collateral  note  into  cash,  by  a  mere 
notice  to  the  creditor  that  if  he  exchanges  it  for  another  note  he 
must  take  the  collateral  as  cash.  The  pledgor  can  give  such 
notices  and  warnings  as  may  raise  proof  of  negligence  on  the 
part  of  the  creditor  if  he  disregards  them.  But  this  amounts  to 
nothing,  unless  injury  and  loss  be  shown  to  have  resulted  from 
negligence  or  mismanagement  on  his  part.  No  doubt  the  pledgee 
takes  upon  himself  an  increased  responsibility  by  making  an  ex- 
change of  security ;  but  it  is  only  the  omission  of  proper  care 
and  diligence  on  his  part  that  will  make  him  liable  to  account 
for  collateral  security  which  has  proved  worthless.^ 

But  the  creditor  is  liable  for  any  loss  occasioned  by  an  ex- 
change of  the  collateral  obligation  without  the  consent  of  the 
debtor,  or  by  the  conversion  of  the  collateral  into  a  less  security, 
by  discharging  any  of  the  parties  originally  liable  upon  the  col- 
lateral.^ If,  for  instance,  he  takes  in  exchange  for  a  note  signed 
by  two  persons  a  new  note  signed  by  only  one  of  them,  he  ren- 
ders himself  accountable  to  the  principal  debtor  for  the  original 
collateral  note.^ 

719.  If  the  creditor  extend  the  time  of  payment  of  the 
collateral  note,  he  thereby  makes  it  his  own.*  Such  is  the 
effect  of  his  receiving  payment  of  part  of  the  collateral  note  at 
its  maturity,  and  taking  a  new  note  payable  at  a  future  day  for 
the  part  not  paid.^  Even  where  a  creditor  does  not  make  a 
definite  agreement  for  extension,  he  may,  by  so  dealing  with  the 
collateral  obligation  as  to  delay  the  collection  of  it,  make  it  his 

1  Girard  Fire  &  Marine  Ins.  Co.  v.  *  Freeman  v.  Benedict,  37  Conn. 
Marr,  46  Fa.  St.  504,  per  Thompson,  J.  559. 

2  Girard  Fire  &  Marine  Ins.  Co.  v.  ^  Nexsen  v.  Lyell,  5  Hill  (X.  Y.), 
Marr,  supra;  Muirhead  v.  Kirkpa-  466;  Southwick  v.  Sax,  9  Wend.  (N. 
trick,  21  lb.  237.  Y.)  122;  Gage  v.  Punchard,  6  Daly 

8  Muirhead  v.  Kirkpatrick,  supra.        (N.  Y.),  229. 

530 


DILIGENCE   IN   COLLECTING   COLLATERAL   PAPER.  [§  719. 

own.  Thus,  if  a  draft  be  received  by  a  creditor  from  his  debtor 
to  collect,  and  to  place  to  tbe  account  of  the  latter  when  paid, 
and  the  creditor  presents  the  draft  to  the  drawee  and  receives 
his  check  for  it,  but  delays  for  one  day  to  present  the  check,  dur- 
ing which  time  the  drawee  fails,  the  principal  debtor  is  dis- 
charged from  all  liability ;  for  the  creditor  in  such  case  under- 
takes to  do  all  that  the  law  requires  to  be  done  to  obtain  payment 
of  the  draft,  and  having  failed  in  that  duty  to  the  prejudice  of 
the  debtor,  he  must  suffer  the  consequences.^ 

As  regards  the  maker  of  the  collateral  note,  an  extension  of 
the  time  of  payment  by  taking  a  new  note  payable  at  a  future 
day,  in  place  of  the  original  note,  may  have  the  effect  of  making 
a  new  and  valuable  consideration  for  the  new  note,  although  the 
original  note  was  without  consideration  and  subject  to  defence  in 
the  hands  of  the  creditor.  In  such  case,  the  new  note  being 
founded  on  a  valuable  consideration,  independent  of  that  on 
which  the  original  note  was  founded,  the  failure  of  the  considera- 
tion of  the  former  is  not  a  defence  by  the  maker  in  a  suit  against 
him  on  the  last  note.^ 

1  Smithv.  Miller,  43  N.Y.I  71, 174.        ^  Muirhead  v.  Kirkpatrick,  21  Pa. 

St.  237. 

:  531 


CHAPTER    XVIII. 


REMEDIES  UPON  PLEDGES  OF  STOCKS. 


I.  Sale  at  common  law,  720-729. 
II.  Sale  under  powers  of  sale,  730-740. 
III.  Illegal  sales  by  the  pledgee,  741-7-19. 


IV.  The  measure  of  damages  for  an  illegal 
sale  of  stock  collaterals,  750-757. 


I.  Sale  at  Common  Law. 
720.  As  has  already  been  noticed,  a  holder  of  collateral 
securities,  upon  the  debtor's  default,  has  several  remedies. 
He  may  enforce  payment  of  the  principal  debt ;  he  may  sell  the 
collateral  securities  under  any  power  of  sale  the  debtor  may  have 
given,  or,  in  the  absence  of  such  power,  he  may  sell  them  upon 
giving  reasonable  notice  to  the  debtor  ;  or  he  may,  by  bill  in 
equity,  have  a  judicial  sale.^  The  latter  course  is  rendered 
necessary  where  stock  has  been  pledged  by  delivery  of  a  certifi- 
cate, without  any  transfer,  or  power  to  make  a  transfer.  A 
court  of  equity  will  look  upon  a  transfer  as  made  which  ought 
to  be  made,  and  wall  decree  a  sale  and  application  of  the  pro- 
ceeds to  the  payment  of  the  loan.^  There  is  also  jurisdiction  in 
equity  in  case  an  account  between  the  parties  must  be  stated,  in 
order  to  determine  the  amount  of  the  debt  secured,^  or  even  in 
case  there  is  such  oUncertainty  as  to  the  time  of  payment  that  a 
demand  of  pajmient  will  not  certainly  make  the  debt  due.^ 


721.  The  holder  of  stocks  or  bonds  of  a  corporation,  as 
collateral,  may  sell  them,  because  that  is  the  usual  method  of 
turning  such  securities  into  money ;  the  sale  being  made  at 
public  auction,  after  demand  of  payment  and  due  notice  of  the 
sale.^     Such    securities  are   expressly  designed  to  be  circulated 


^  Robinson  v.  Hurley,  11  Iowa,  410. 

2  Johnson  v.  Dexter,  2  McArthur, 
530. 

3  §§  640,  641. 

4  Stokes  V.  Frazier,  72  III.  428. 

5  Cortelyou    v.  Lansing,    2    Caines 
Cas.  (N.  Y.)  200;  Brown  v.  Ward,  3 

532 


Duer  (N.  Y.),  660;  and  see  Fletcher 
V.  Dickinson,  7  Allen  (Mass.),  23; 
Vaupell  V.  Woodward,  2  Sandf.  (N. 
Y.)  Ch.  143  ;  Wallace  r.  Berdell,  24 
Hun  (N.  Y.),  379  ;  Canfield  v.  Minne- 
apolis Agricultural  &  Mechanical 
Asso.  (C.  C.  D.  Minn.  1883),  14  Fed. 


SALE   AT   COMMON   LAW.  [§§  722,  723. 

and  sold  in  the  stock  market ;  and  it  is  to  be  presumed  that,  in 
making  a  pledge  of  such  securities,  the  parties  contemplate  a  sale 
of  them  in  case  the  debt  which  they  secure  is  not  paid  according 
to  agreement.^ 

Interest  accruing  upon  collateral  securities  may,  in  the  absence 
of  any  agreement  to  the  contrary,  be  properly  collected  by  the 
pledgee,  and  applied  to  the  debt  secured.  Thus,  if  a  bond  with 
interest  coupons  be  the  subject  of  a  pledge,  an  authority  in  the 
pledgee  to  collect  the  interest  as  it  becomes  payable  is  necessarily 
implied.^  A  railroad  company  having  pledged  its  own  bonds  as 
collateral  security,  and  afterwards,  by  its  agents,  having  paid  the 
interest  coupons  as  they  matured,  is  precluded  by  such  payment 
from  claiming  that  cutting  off  and  collecting  the  coupons  oper- 
ated as  a  conversion  of  the  bonds.^ 

722,  The  remedies  of  a  broker  who  has  purchased  stock 
for  a  customer  on  a  deposit  of  a  margin  are  :  1st.  By  suit  for 
the  purchase-money,  after  tendering  the  stock  and  demanding 
payment ;  2d.  By  suit  for  a  breach  of  the  contract,  wherein  the 
broker  would  charge  himself  with  the  stock  purchased  and  the 
advance  made  upon  it ;  *  3d.  By  a  public  sale  of  the  stock  pur- 
chased, after  proper  demand  upon  the  customer,  and  notice  to 
him  of  the  time  and  place  of  sale,  followed  by  suit  against  the 
customer  for  any  deficiency  there  might  be. 

723.  A  custom  of  brokers  to  sell  at  the  stock  exchange, 
without  the  notice  required  at  common  law,  stocks  and 
bonds  deposited  as  collateral,  is  declared  to  be  unreasonable 
and  void.^     As  has  already  been  shown,^  a  purchase  of  stock  by 

Rep.  801.     That  railroad  bonds  can-  ^  Androscoggin  R.  R.  Co.  v.  Auburn 

not  be  sold,  but  must  be  collected,  see  Bank,  48  Me.  335. 

Joliet  Iron  &  Steel  Co.  v.  Scioto  Fire  ^  Androscoggin  R.  R.  Co.  v.  Auburn 

Brick  Co.  82  111.  548,  a  decision  un-  Bank,  supra. 

supported  in  reason  or  authority,  and  *  Merriam    v.    Kellogg,    58    Barb. 

in  conflict  with  prior  decisions  of  the  (N.  Y.)  445  ;   Bement    v.  Smith,    15 

same  court,    to    which   this    decision  Wend.  (N.  Y.)  493. 

makes  no  reference.    Stokes  w.  Frazier,  ^§503;  Wheeler  u.  Newbould,  16 

72  111.  428.  N.  Y.  392;    Lawrence  v.  Maxwell,  53 

1  Morris  Canal   &  Banking  Co.  v.  N.  Y.  19. 

Lewis,  12  N.  J.  Eq.  323.  A  decision   that  such  a  custom  is 

«  §S  495-500. 

633 


§  724.]  REMEDIES   UPON   PLEDGES   OF   STOCKS. 

a  broker  for  a  customer,  upon  a  mftrgin,  creates  the  relation  of 
pledgor  and  pledgee  between  them.  Therefore,  in  a  case  in 
New  York,  where  an  offer  of  testimony  was  made  to  show  a 
custom  of  brokers  to  sell  without  notice,  the  testimony  was  held 
to  be  inadmissible.^  Chief  Justice  Hunt,  in  relation  to  this 
part  of  the  case,  said ;  "  The  bi-oker  has  no  right  to  sell  without 
notice.  A  practice  or  custom  to  do  otherwise  would  have  no 
more  force  than  a  custom  to  protest  notes  on  the  first  day  of 
grace,  or  a  custom  of  brokers  not  to  purchase  the  shares  at  all, 
but  to  content  themselves  with  a  memorandum  or  entry  in  their 
books  of  the  contract  made  with  their  customer.  Such  practice, 
in  each  case,  would  be  in  hostility  to  the  terms  of  the  contract, 
an  attempt  to  cliange  its  obligation,  and  would  be  void.  The 
proof,  therefore,  cannot  be  legally  given."  If  the  broker  desires 
to  possess  himself  of  the  power  to  sell  the  collateral,  on  failure 
to  repay  advances,  without  notice  of  time  and  place  of  sale,  he 
must  make  an  agreement  that  shall  permit  him  to  do  so.^ 

724.  The  bankruptcy  of  the  pledgor  of  stock  or  negoti- 
able bonds  of  a  corporation  does  not  deprive  the  pledgee 
of  the  right  to  sell  and  transfer  them,  upon  the  pledgor's  de- 
fault. This  right  is  presumable  from  the  nature  of  the  trans- 
action, even  in  the  absence  of  any  express    stipulation  in  the 

not  illegal  as  between  parties  familiar  botli  members  of  the  board  of  brokers, 
with,  and  dealing  on  the  basis  of,  such  familiar  with  and  dealing  on  the  basis 
custom,  was  rendered  in  the  Common  of  it,  it  is  a  valid  and  lawful  custom, 
Pleas  Court  of  Philadelphia,  in  the  and  controls  tl^  rights  of  these  par- 
case  of  Colket  V.  Ellis,  10  Phila.  (Pa.)  ties." 

375,379.     Mr.  Justice  Mitchell,  after  But,  aside  from  the  matter  of  cus- 

referring  to    several    cases   upon   the  tom,  the  learned  judge  was  of  opinion 

general  subject  of   usages,  said:    "I  that,  in  this  case,  there  was  an  assent 

think  their  effect  may  be  summed  up  on  the  part  of   the  customer  to  the 

to  be,  that  where  no  statute  or  prin-  sale   at   the   time  it  was  made,  and, 

ciple  of  public    policy  intervenes,  but  moreover,  a  ratification  of  it  after  it 

a  rule  of  law  is  a  mere  privilege  which  was  made. 

may  be   waived,  there  is   no  reason  This    question  was  raised,  but  not 

why  the  waiver  may  not  be  as  well  by  decided,  in  Covill  v.  Loud,  134  Mass. 

a  custom  known  to,  and  acquiesced  —  ;  ^.  C  18  Cent.  L.  J.  4  71.     As  in 

in,  by  the   parties  as  by  an  express  the  previous  case,  there  was  an  assent 

contract.      Without   intimating  what  to  the  sale  by  the  customer, 

would  be  the  effect  if  such  a  usage  as  ^  Markham    v.   Jaudon,  41    N.  Y. 

the  present  were  set  up  against   an  235. 

outside   party,  I  am  of  opinion   that,  ^  Taylor  v.  Ketchum,  6  Robt.  (N. 

as  between  plaintiffs  and  defendants,  Y.)  507,  513,  per  Garvin,  J. 

534 


SALE   AT   COMMON   LAW.  [§§  725,  726. 

contract  of  pledge  that  the  pledgee  may  sell  on  default.  The 
Bankrupt  Act  takes  away  no  right  secured  to  the  pledgee  by  his 
contract.^ 

If,  in  the  proof  of  a  promissory  note  in  bankruptcy,  the  creditor 
agrees  with  the  assignee  in  bankruptcy  that  bonds  or  stocks  held 
as  collateral  shall,  for  the  purpose  of  proof,  be  credited  as  of  a 
certain  value,  or  even  if  the  agreement  be  that  the  collateral 
shall  be  sold  at  a  certain  price,  for  the  purpose  of  fixing  the 
amount  provable  against  the  bankrupt's  estate,  such  agreement 
is  not  conclusive  as  against  another  party  to  the  note  that  the 
creditor  actually  received  the  amount  so  credited,  or  that  he  made 
any  actual  sale  of  the  collateral  which  such  other  party  was 
entitled  to  avail  himself  of.  Whether  there  was  any  such  sale 
is  a  question  of  fact.^ 

725.  A  creditor  cannot  apply  collateral  security  in  satis- 
faction of  the  debt  in  any  way  save  by  notice  and  public 
sale,  or  in  pursuance  of  a  contract  for  private  sale.^  A  loan  was 
made  in  1855  upon  certain  shares  of  telegraph  stock.  In  1863 
the  debtor  offered  to  pay  the  debt,  and  demanded  a  return  of  the 
stock.  The  creditor  replied  that  he  had  not  expected  the  stock 
would  ever  be  redeemed,  and  had  sold  his  own  stock  of  the  same 
company  at  a  low  price,  because  he  did  not  wish  to  have  so  much 
of  it,  retaining  that  which  he  had  received  in  pledge.  Inasmuch 
as  he  would  have  lost  in  case  the  stock  had  declined,  having 
nothing  else  to  look  to  for  his  claim,  he  thought  it  only  just  that 
he  should  have  the  benefit  of  a  rise  in  the  stock,  having  taken 
all  the  risk  himself.  But,  of  course,  the  court  told  him  that  he 
could  not  appropriate  the  stock  to  the  payment  of  the  debt  at 
his  own  option,  but  only  in  the  manner  the  law  provides.^ 

726.  The  general  rules  in  regard  to  demand  and  notice  in 
the  case  of  the  sale  of  an  ordinary  chattel  under  a  pledge 
apply  to  sales  of  stocks  held  in  pledge.^     If  the    obligation 

1  Jerome  v.  McCarter,  94  U.  S.  *  DjU^r  ?;.  Bruhaker,  52  Pa.  St.  498; 
734;  Grinnell,  in  re,  9  N.  Bank.  II.  and  see  Davis  v.  Funk,  39  Pa.  St.  243  ; 
137.  Sitj,freaves  v.  Fanners'  &  INIechanics' 

2  Globe  Nat.  Bank  v.  Ingalls,  130  Bank,  49  Pa.  St.  359;  Conyngliam's 
Mass.  8.  Appeal,  57  Pa.  St.  474. 

8  Lewis  V.  Mott,  3G  N.  Y.  395;  Mc-         6  France  v.  Clark,  22  Cb.  D.  830. 
Neil   V.  Tentb  Nat.  Bank,   55   Barb. 
(N.  Y.)  59.  635 


§  727.]  REMEDIES   UPON   PLEDGES   OF   STOCKS. 

secured  be  not  payable  at  a  fixed  time,  a  demand  of  payment  is 
necessary  before  proceeding  to  give  notice  of  the  time  and  place  of 
sale.  Such  a  demand  is  necessary  to  create  a  default.  Thus,  a 
broker  carrying  stocks  upon  a  margin  must  demand  payment 
either  of  the  balance  of  the  account,  or  demand  that  the  margin 
be  made  good,  in  case  there  be  a  special  contract  in  regard  to  the 
amount  of  the  margin  to  be  kept. 

A  notice  that  unless  a  specified  amount  of  the  loans  secured  be 
paid,  the  stock  collateral  would  be  "  used,"  does  not  constitute  a 
demand  sufficient  to  authorize  a  sale.^ 

727.  Corporate  bonds  and  stocks  held  as  collateral 
securities  may  be  sold,  like  ordinary  pledges,  after  the  debt 
secured  becomes  due,  without  judicial  process  and  decree  of  fore- 
closure, upon  giving  reasonable  notice  to  the  debtor  to  redeem.^ 
The  sale  must  be  at  public  auction,  and  the  notice  must  specify 
the  time  and  place  of  it.'^  Aside  from  a  sale  under  judicial  pro- 
cess, or  one  at  auction,  after  proper  notice,  the  holder  of  such 
collaterals  can  appropriate  them  to  the  payment  of  the  debt 
secured  only  in  pursuance  of  a  special  contract  with  the  debtor.^ 
In  the  absence  of  a  special  agreement  as  to  the  time,  place,  or 
manner  of  sale,  such  collaterals  must  be  sold  at  public  auction, 

1  Genet  v.  Howland,  45  Barb.  (N.  articles  of  like  character  and  descrip- 
Y.)  560;  .S.  C.  30  How.  Pr.  360.  tion,  which  possess  a  peculiar  value  to 

2  Morris  Canal  &  Banking  Co.  v.  the  owner,  or  which  cannot  readily  be 
Lewis,  12  N.  J.  Eq.  323;  Indiana  &  replaced,  it  is  riojht  and  necessary  to 
111.  Cent.  R'y  Co.  v.  McKernan,  24  give  notice  to  the  bailor  of  both  the 
Ind.  62  ;  Loud  v.  Burke,  22  Gratt.  time  and  place  of  sale,  in  order  that 
(Va.)  254;  Water  Power  Co.  v.  he  may  have  an  opportunity  of  re- 
Brown,  23  Kans.  6  76,   691.  deeming  his  pledge,  or  attending  the 

2  Diller  r.  Brubaker,  52  Pa.  St.  498  ;  sale  and  protecting  his  interests.     But 

Conyngham's  Appeal,  57  Pa.  St.  474;  the   same  reason   does   not   apply  to 

Gay  V.  Moss.  34  Cal.   125;  Eobinson  cases  of  sales  of  stocks.      One  share 

V.  Hurley,    11   Iowa,  410  ;    Brown  v.  is  exactly  similar  to,  and  of  the  same 

Ward,  3  Duer  (N.  Y.),  6G0.     Contrary  value,   as  another  of  the    same  com- 

to  the   better  and   general  rule,  it  is  pany,  and   can   be   purchased    easily 

declared   in  Worthington  v.  Tormey,  and  readily,  if  desirable."     Itis,  how- 

34  Md.  182,  195,  that,  in  selling  stocks,  ever,  submitted  that  the  reason  given 

a  pledgee  is  not  bound  to  give  notice  is  not  sufficient  to  sustain  the  excep- 

of  i\ie  place  of  sale,  Grason,  J.,  saying  :  tion  to  that  rule. 
"  In  sales  of  some  kinds   of   pledges,         *  Diller  v.  Brubaker,  supra. 
such   as   heir-looms,  plate,  and  other 

536 


SALE   AT   COMMON   LAW.  [§  728. 

after  reasonable  notice  to   the  debtor  of  tlie  time  and  place  of 
sale.^ 

When  a  creditor  has  given  proper  notice  of  the  sale  of  the 
collateral  security,  the  debtor  has  no  alternative  but  to  redeem 
the  security  by  paying  the  debt  for  which  it  was  pledged,  or  to 
allow  it  to  be  sold.  He  cannot  resist  the  creditor's  right  to  have 
the  stock  sold,  on  the  ground  that  the  sale  could  then  be  made 
only  at  a  great  sacrifice.^ 

728.  A  pledgee  of  corporate  stocks  or  bonds  is  under  no 
obligation  to  sell  the  security  after  default  in  payment  of 
the  debt.^  Thus,  one  holding  bank  shares  as  collateral  security 
wrote  to  his  debtor  requesting  payment,  and  stating  that  if  pay- 
ment were  not  made  immediately  he  should  sell  the  shares.  The 
debt  was  not  paid,  and  the  pledgee  did  not  sell  the  shares.  The 
bank  afterwards  failed,  and  the  shares  became  of  no  value.  In 
an  action  by  the  creditor  on  the  debt,  it  was  held  that  his  omis- 
sion to  sell  the  shares  constituted  no  defence.  The  pledgee  in 
such  case  takes  upon  himself  no  duty  to  sell  the  shares,  but 
simply  holds  them  as  security,  with  perhaps  a  power  to  sell. 
The  remedy  of  the  debtor  is  in  paying  the  debt  and  redeeming 
the  shares.*  It  does  not  alter  the  case  that  the  stock  has  been 
transferi'ed  on  the  books  of  the  corporation  and  a  new  certificate 
issued  to  the  pledgee.  Though  the  pledgor  cannot  himself  sell 
the  stock  in  such  case,  he  could,  after  the  maturity  of  the  debt, 
request  the  pledgee  to  sell,  and  in  that  way  make  him  liable  for 
a  loss  occurring  through  his  failure  to  sell.  But  without  such 
request,  and  in  the  absence  of  any  special  agreement  upon  this 

1  Little    V.  Barker,  Ho£f.    (N.  Y.)  timely  and  reasonable  notice,  the  par- 

Ch.  487;  Genet  V.  Howland,  45  Barb,  ties  livinir  and   being   in   the   city  of 

(N.  Y.)  560;  S.  C.  30  How.  Pr.  360;  New  York,  where  the   sale  was  made 

Lewis  V.  Graham,  4  Abb.  (N.  Y.)  Pr.  and  all  the  transactions  had. 

106;  Oi,nlen  y.  Lathrop,  3  J.  &  S.  (N.  2  Rfigdi    y.   His    Creditors,    1    La. 

Y.)  73;  Stokes  v.  Frazier,  72  111.  428;  Ann.  31. 

Sitgreaves  v.  Farmers'  &  Mechanics'  ^  O'Neill   v.  Whio;ham,  87  Pa.  St. 

Bank,  49  Pa.  St.  359  ;   Strontr  v.  Nat.  394;  S.  C.  7  Reporter,  215;  Robinson 

Mechanics'  Bank,  45  N.  Y.  718.     As  v.  Hurley,  11   Iowa,  410;   Colquitt  v. 

to  reasonable  notice,   see  Stewart  v.  Stiiltz,    65    Ga.    305;    Rozet   v.  Mc- 

Drake,   46  N.  Y.  449,  holding  that  a  Clellan,  48  111.  345. 

notice  given  on  the  afternoon  of  Thurs-  ■*  Granite    Bank    v.    Richardson,   7 

day,  of  a  sale  to  be  made  at  half-past  Met.  (Mass.)  407. 
twelve   o'clock   on    Saturday,   was   a 

537 


§  729.]  REMEDIES   UPON   PLEDGES   OF   STOCKS. 

matter,  it  is  discretionary  with  the  pledgee  after  maturity  to  sell 
or  not  as  he  may  deem  best.  The  law  imposes  no  obligation 
upon  him  to  do  anything  more  than  to  safely  keep  the  stock  so 
as  to  restore  it  when  the  debtor  might  redeem. ^ 

When  a  creditor  has  agreed  to  dispose  of  collateral  stock  held  ■ 
in  pledge  and  apply  the  proceeds  to  the  payment  of  the  debt,  his 
neglect  to  do  so  is  not  a  bar  to  an  action  upon  the  debt,  but  is  a 
matter  of  defence  or  set-off.^ 

729.  A  pledgee  of  stock  is  not  liable  for  a  loss  occasioned 
by  his  neglect  to  sell  the  stock,  —  it  having  depreciated  in  his 
hands  till  it  became  worthless,  —  when  by  contract  between  the 
parties  the  right  to  sell  the  stock  had  been  conferred  upon  the 
pledgee  or  a  third  person,  and  the  pledgee  has  never  refused  to 
transfer  the  stock  for  the  purpose  of  a  sale,  and  the  pledgor  has 
never  requested  that  a  sale  should  be  made.^  The  pledgor,  hav- 
ing the  general  property  in  the  pledge,  may  sell  it,  and  compel 
its  restoration  upon  paying  the  debt  secured.*  If  he  should  find 
a  purchaser  who  should  tender  the  amount  of  the  debt  to  the 
pledgee,  and  the  latter  should  refuse  to  deliver  the  stock  to  him 
upon  the  order  of  the  pledgor,  the  creditor  would  undoubtedly  be 
liable  for  a  conversion  of  the  stock. 

A  creditor  holding  corporate  bonds  as  collateral  security  is  not 
liable  for  a  depreciation  occurring  after  he  has  received  other 
collaterals  in  their  place,  under  an  agreement  to  surrender  the 
bonds,  unless  the  debtor  has  demanded  them.  It  is  the  duty  of 
the  debtor  in  such  case,  if  he  wants  the  bonds  after  he  has  be- 
come entitled  to  them,  to  demand  their  surrender ;  and,  if  he 
allows  them  to  remain  in  the  creditor's   hands,  they  are  at  his 

1  Colquitt  V.  Stultz,  65  Ga.  305.  Newsotne   v.  Davis,  133   Mass.  343  ; 

^  Taggard  v.  Curtenius,  15  Wend.  Richardson  v.  Ins.  Co.  27  Gratt.  (Va.) 
(N.  Y.)  155.  Tiie  stock  in  this  case  749,  where  the  stock  pledged  was  sup- 
was  of  a  bridge  company,  and  the  posed  to  have  become  worthless  in 
debtor  claimed  that  the  creditor  ne-  consequence  of  the  Civil  War,  but  the 
glected  to  dispose  of  the  stock,  accord-  pledgor  neither  sought  to  redeem  it 
ing  to  agreement,  until  the  bridge  was  nor  requested  the  jjledgee  to  sell  it; 
carried  away  by  a  flood,  and  its  value  Colquiit  v.  Stultz,  supra;  S.  C.  22 
was  thereby  greatly  lessened.  Alb.  L.  J.  436. 

8  Howard  v.  Brigham,  98  Mass.  133;  <  Rozet  v.  McClellau,  48  111.  345. 
O'Neill  V.  Whigham,  87  Pa.  St.  394; 
538 


SALE   UNDER   POWER.  [§  730. 

risk,  so  far  as  loss  may  occur  from  delay  in  collection  or  the  like 
cause.i 

When  the  pledgee  has  the  right  to  sell  the  stock  at  his  discre- 
tion without  notice,  he  is  not  bound  to  sell  the  stock,  even  at  the 
pledgor's  request,  immediately  upon  default.  He  may  in  such 
case  exercise  his  own  judgment  as  to  the  sale  of  the  stock,  sub- 
ject only  to  the  general  liability  of  a  pledgee  for  negligence.^  His 
refusal  to  sell  upon  request  may,  or  may  not,  be  negligence. 
Such  a  request  may  tend  to  prove  negligence  and  may  be  essential 
to  establish  it.^ 

Certainly  the  creditor  is  under  no  obligation  to  sell  the  stock 
immediatelji'  upon  default.  He  can  hold  the  stock  at  his  own 
risk  without  making  sale.*  Even  if  the  debtor  should  request 
the  creditor,  upon  default,  to  sell  the  stock,  it  would  seem  that 
such  request  would  be  without  legal  effect ;  because  the  debtor, 
if  he  desires  to  sell  the  stock,  should  first  redeem  it,  and  then  he 
can  do  with  it  as  he  may  choose. 

II.  Sale  under  Powers  of  Sale. 

730.  In  general. —  It  is,  of  course,  competent  for  the  parties 
to  agree,  by  express  terms,  that  upon  the  pledgor's  default,  or 
upon  his  failure  to  keep  the  security  good,  the  pledgee  may  sell 
at  public  or  private  sale,  at  his  option,  without  giving  notice  of 
his  intention,  or  of  the  time  or  place  of  sale  ;  ^  or  upon  giving  a 
specified  notice  of  such  time  and  place.^ 

A  debtor,  though  in  fact  insolvent,  may  authorize  -his  creditor 
to  sell  at  private  sale  stocks  held  as  collateral  security.  He  may 
even,  after  his  faikire,  if  before  the  commencement  of  proceed- 
ings in  bankruptcy,  authorize  a  sale  of  collaterals,  or  acquiesce 

^  Williamson  t".  McClure,  37  Pa.  St.  California  (Codes  and    Stats.  1876, 

402.  §  8092,  Civil  Code,  §  3092)  and  Da- 

2  Franklin  Sav.  Inst.  v.  Preetorius,  kota    Territory    (K.    Codes    1877, 

6  Mo.  App.  470.  §  1826  of  Civil  Code)  it  is  expressly 

8  Goodall  V.  Richardson,  14  N.  H.  provided  by  statute  tliat  a  negotiable 

567,  572.  instrument  may  contain  a  pledge  of 

*  O'Neill  V.  Whigham,  87  Pa.  St.  collateral  security,  with  authority  to 

394.  dispose  thereof. 

6  Milliken  v,  Dehon,  27  N.  Y.  364;  It  is  held  that   such  a  power  does 

Chouteau  V.  Allen,  70  Mo.  290.  not  deprive  a  promissory  note  of  its 

*'  Bates  V.  Wiles,  1   Handy  (Ohio),  negotiable    character.       Fancourt    v. 

532;  Loomis  v.  Stave,  72  111.  623.     In  Thorne,  9  Q.  13.  312. 

639 


§  731.]  REMEDIES  UPON  PLEDGES   OF   STOCKS. 

in  a  sale  made,  although  at  a  sacrifice  ;  and  his  assignee  in  bank- 
ruptcy subsequently  chosen  will  be  bound  by  such  authority  or 
acquiescence.-^ 

A  power  of  sale  without  notice  or  demand,  upon  default  of 
payment  of  an  obligation  having  a  definite  time  of  payment,  may 
be  exercised  immediately  upon  such  default.^  Under  a  time- 
note,  giving  authority  to  sell  the  security  on  non-performance  of 
the  promise,  no  valid  sale  of  the  collateral  can  be  made  before 
the  maturity  of  the  principal  debt.  A  sale  before  maturity  is  a 
conversion  and  not  a  sale  under  the  power,  which  is  restricted  by 
the  terms  of  the  contract  to  the  case  of  non-performance.^  But 
where-  a  note  payable  in  three  months  was  secured  by  a  pledge 
of  stock  which  the  lender  agreed  to  hold  for  three  months,  it 
was  held  that,  inasmuch  as  there  were  days  of  grace  upon  the 
note  but  none  upon  the  agreement  for  the  return  of  the  stock, 
the  stock  might  be  sold  under  a  power  before  the  maturity  of 
the  note.* 

731.  A  power  of  sale  may  be  implied  from,  the  terms  of  the 
pledge.  Thus,  drafts  drawn  upon  a  person  with  whom  the 
drawer  had  deposited  city  bonds  and  scrip,  directing  him  to  pay 
"from  the  proceeds  of  securities  in  his  hands,"  or  to  pay,  "when 
in  funds,  from  the  proceeds,"  was  held  to  imply  authority  in  the 
latter  to  sell  the  securities  to  meet  the  drafts  ;  and  a  sale  under 
such  authority  is  good  without  notice  to  the  debtor  of  the  time 
and  place  of  sale,  and  without  previous  demand  of  payment.^ 
Authority  to  sell  at  private  sale  was  inferred  from  a  pledge  of 
stock,  with  authority  to  the  pledgee  to  sell  in  case  it  is  not  re- 
deemed by  a  day  specified,  or  to  give  the  same  "  to  any  broker 
to  sell  on  that  day ; "  and  a  sale  made  by  a  broker  after  the  day 
specified,  at  private  sale,  for  the  full  market  price  of  thesto  ck, 
was  held  to  be  in  conformity  with  the  authority,  and  valid.^ 
This  construction  is  based  upon  the  consideration  that  the  par- 
ties by  their  contract  intended  to  enlarge  the  power  of  sale  which 
the  law  gives  to  every  pledgee,  and  to  enable  him  to  sell  at  pri- 

1  Sparliawk  v.  Drexel,  12  N.  Bank.  ^  Rankin  v.  McCullough,  12  Barb. 
K.  450.  (N.  Y.)  103. 

2  Chouteau  v.  Allen,  70  Mo.  290.  ^  Hyatt  v.  Argenti,  3  Cal.  151. 

8  Allen  V.  Dykers,  3  Hill  (N.  Y.),         ^  Bryson  v.  Rayner,  25  Md.  424. 
593;  S.  C.  7  Hill,  497. 
540 


SALE   UNDER   POWER.  [§  732. 

vate  sale,  and  without  notice.  The  fact  that  a  sale  b}'  a  broker 
was  autliorized  implied  a  private  sale,  and  the  provision  that  he 
might  sell  on  the  day  he  received  the  stock  excluded  the  require- 
ment of  any  notice.^ 

Where  collateral  secuinties  have  been  pledged  upon  special 
terms,  and  afterwards  further  securities  are  deposited  by  way  of 
margin  on  the  original  loans,  the  latter,  in  the  absence  of  any 
special  agreement,  may  be  regarded  as  pledged,  according  to  the 
terms  of  the  written  contracts  relating  to  the  original  securities, 
under  the  rule  that  the  accretion  follows  the  main  body,  and  is 
subject  to  the  same  conditions.  If  by  the  terms  of  the  original 
pledge  some  of  the  securities  might  be  sold  on  one  day's  notice  and 
some  on  three  days'  notice,  the  additional  securities  may  be  sold 
upon  the  longest  term  of  notice  so  stipulated  for.^ 

732.  Waiver  of  notice.  —  Under  a  special  authority  to  sell 
collaterals  upon  default  of  payment  without  notice,  or  upon  de- 
mand of  payment  without  further  notice,  all  notice  of  the  time 
and  place  of  sale,  such  as  the  law  requires  in  the  absence  of  a 
special  agreement,  is  waived.^  The  only  obligation  resting  upon 
the  creditor  in  such  case  is  to  sell  publicly  and  fairly  for  the  best 
price  he  can  obtain.  But  the  parties  may  agree  that  there  may 
be  a  private  sale  without  notice,  and  then  the  only  obligation 
upon  the  creditor  is  to  sell  fairly  for  the  best  price  he  can  reason 
ably  obtain.* 

Where,  by  the  terms  of  a  contract,  a  loan  is  made  payable  on 
one  day's  notice,  and  the  creditor  is  authorized,  upon  the  debt- 
or's default,  to  sell  the  collaterals  without  further  notice,  a  sale 
may  be  made  at  any  time  after  the  expiration  of  one  day  from 
the  making  of  demand  of  payment.^ 

If  stock  or  bonds  be  pledged  as  security,  with  a  right  of  sale 
if  the  indebtedness  be  not  paid  within  a  reasonable  time,  but  the 
power  of  sale  makes  no  provision  as  to  the  time,  place,  or  manner 

1  Bryson  v.  Rayner,  25  Md.  424.  *  Genet  v.  Rowland,  45  Barb.  (N. 

2  Baltimore  JMarine  Ins.  Co.  v.  Dal-  Y.)  5G0;  Milliken  v.  Delion,  27  N.  Y. 
rymple,  25  Md.  2G9,  301.  364;    Hamilton    v.    State     Bank,    22 

8  Loomis    V.    Stave,    72    Bl.    623;  Iowa,  306;  Fitzgerald  v.  Blocher,  32 

Maryland  Fire  Ins.  Co.  u.  Dalrymple,  Ark.    742;    Robinson    r.    Hurley,    11 

25  Md.   242,   264;  Baltimore  Marine  Iowa,  410. 

Ins.  Co.  V.  Dalrymple,  .««;.!?•«;  Bryson  y.  5  g^e   Maryland    Fire    Ins.   Co.   v. 

Rayner,  supra  ;  S.  C.  29  lb.  4  73.  Dalrymplc,  supra. 


L) 


41 


§§  733-735.]   REMEDIES  UPON  PLEDGES  OF  STOCKS. 

of  sale,  a  valid  sale  cannot  be  made  without  giving  the  debtor 
reasonable  notice  of  the  time  and  place  of  sale.  A  sale  made  by 
the  creditor  upon  the  same  day  that  he  notifies  the  debtor  that 
he  must  pay  or  satisfactorily  secure  his  indebtedness  is  made 
upon  an  unreasonable  notice,  and  renders  the  creditor  liable  in 
damages.! 

733.  A  minor  may  revoke  his  -waiver  of  notice  of  sale 
upon  coming  of  age.  Thus  a  minor  who  has  bought  stocks,  and 
deposited  money  with  his  broker  for  a  margin  to  carry  them, 
may  upon  coming  of  age  repudiate  the  transaction,  may  retract 
authority  given  the  broker  to  sell  the  stocks  without  notice  or 
demand  of  payment,  and  may  recover  the  amount  deposited  with 
the  broker  to  cover  margins.^ 

734.  When  the  giving  of  the  notice  of  sale  provided  for 
in  a  contract  of  pledge  has  been  rendered  impossible  by  the 
act  of  the  pledgor,  a  valid  sale  may  be  made  without  giving  the 
notice.  Thus  a  bank  having  pledged  negotiable  bonds  with 
power  to  sell  them  in  case  of  default  on  giving  the  bank  thirty 
days'  notice  of  the  intended  sale,  subsequently  failed  and  closed 
its  place  of  business,  and  had  no  office  or  acting  officers.  The 
pledgee  three  years  afterwards  sold  the  bonds  in  good  faith  at 
their  market  value,  without  giving  notice  to  the  bank ;  but  he 
was  held  not  to  have  incurred  thereby  any  liability  for  a  con- 
version of  the  bonds.^ 

735.  As  regards  the  price  obtained  at  a  sale  made  under 
a  power  to  sell  without  notice,  the  mere  fact  that  the  price 
obtained  is  less  than  the  market  price  at  the  time  does  not  alone 
make  the  pledg(^-e  liable  for  the  difference.  It  must  appear  that 
there  was  an  intent  to  injure  the  pledgor,  or  that  there  was  such 
recklessness  shown,  in  the  mode  or  time  of  selling,  that  such  in- 
tent might  be  inferred.* 

1  Stevens  v.  Hurlbut  Bank,  31  ^  Qjty  Bank  of  Racine  v.  Babcock, 
Conn.  146.  1  Holmes,  180. 

2  Heath    v.  Mahoney  (N.  Y.   Su-  *  Durant  v.  Einstein,  5  Robt.  (N. 
perior  Ct.    1881),  12  N.  Y.  Weekly  Y.)  423;  S.  C.  35  How.  Pr.  223. 
Dig.  404. 

542 


SALE   UNDER   POWER.  [§  736. 

736.  A  demand  of  payment  of  the  principal  debt  may  be 
necessary  before  a  sale  of  the  collateral,  although  the  creditor  be 
authorized  to  sell  without  notice  upon  the  debtor's  default.  Thus, 
if  the  debt  be  one  payable  upon  demand,  or  at  an  indefinite  time, 
there  can  be  no  default  until  a  demand  has  been  made,  or  an 
action  has  been  brought  to  enforce  tbe  claim, — the  bringing  of 
an  action  being  only  one  way  of  making  demand  ;^  but  the  creditor 
in  such  cases  may  call  upon  the  debtor  at  any  time  to  redeem. ^ 
A  notice  to  redeem  collateral  securities,  by  payment  of  the 
amount  loaned,  would  operate  as  a  regular  demand  of  payment 
of  the  debt ;  but  under  such  a  notice  a  reasonable  time  to  redeem 
should  be  allowed.  A  notice  without  date  or  signature,  left  at 
the  pledgor's  office,  stating  that  if  a  specified  amount  of  the  loan 
be  not  paid  the  stock  securing  it  would  be  "  used,"  does  not  con- 
stitute a  demand  sufficient  to  authorize  a  sale.^ 

Stocks  carried  upon  a  margin,  under  an  agreement  that  a  cer- 
tain margin  shall  be  maintained,  cannot  be  sold  when  the  margin 
has  become  deficient,  without  giving  notice  to  the  owner  that 
further  margin  is  required,  and  allowing  him  reasonable  time  to 
make  it  good.^  The  right  to  sell  arises  only  upon  failure  of  the 
owner  to  make  the  margin  good.  There  may,  however,  be  an 
agreement  between  a  broker  or  banker  and  customer,  by  which 
a  right  to  sell  will  arise  whenever  the  stocks  should  fall  in  price 
and  diminish  the  margin,  without  calling  upon  the  customer  to 

1  Wilson  V.  Little,  2  N.  Y.  443,  per  ^  Sitgreaves    v.   Farmers'    &    Me- 

Ruggles,   J.     "In  every  contract  of  chanics' Bank,  SM/)?-a. 

pledge  there  is  a  right  of  redemption  ^  Genet  v.  Howland,  supra. 

on  the  part  of  the  debtor.    But  in  this  ^  Stenton  v.  Jerome,  54  N.  Y.  480  ; 

case  that  right  was  illusory  and  of  no  Baker  v.  Drake,  66  lb.  518  ;  Hanks  v. 

value,  if  the  creditor  could  instantly,  Drake,  49  Barb.  (N.  Y.)  186  ;  Bitter 

■without  demand  of  payment  and  with-  v.   Cushman,    7    Robt.    (N.    Y.)    294 ; 

out  notice,  sell  the  thing  pledged.    AVe  IVIilliken    v.   Dehon,    27   N.   Y.    364; 

are  not  required  to  give  the  transac-  Markham  ?;.  Jaudon,  41  lb.  235;  Stew- 

tion   so  unreasonable  a  construction,  art  v.  Drake,  46  lb.  449. 

The  borrower  agreed  that  the  lender  Otherwise      in      Massachusetts, 

might  sell  without  notice,  but  not  that  where  the  contract  in  such  case  is  not 

be  might  sell  without  demand  of  pay-  regarded   as  creating  the  relation  of 

ment,    which    is   a    different    thing."  pledgor  and  pledgee,   but  as  merely 

Genet  v.  Howland,  45  Barb.  (N.  Y.)  executory.     Covell  v.  Loud,  134  Mass. 

560,  565;  Porter  v.  Parks,  49  N.  Y.  —  ;    S.  C.  16  Cent.  L.  J.  471.     Sec 

564;    Sitgreaves   v.  Farmers'   &  Me-  §498. 
chanics'  Bank,  49  Pa.  St.  359;  France 
V.  Clark,  22  Ch.  D.  830. 

643 


§  737.]  REMEDIES   UPON   PLEDGES   OF   STOCKS. 

make  the  margin  good  ;  ^  but  such  an  agreement  is  out  of  the 
usual  course  of  dealing,  and  in  order  to  be  supported  should  be 
definite  and  certain  in  the  intent  that  a  sale  can  be  made  with- 
out giving  the  customer  notice  to  make  good  the  margin. 

737.  Sale  at  brokers'  board.  —  Whether  a  sale  of  corporate 
stocks,  or  bonds,  or  like  securities  at  a  brokers'  board  is  such  a 
public  sale  as  the  law  will  sanction,  or  whether  the  sale  must  be 
made  at  public  auction,  is  a  question  upon  which  there  has  been 
some  diversity  of  opinion.  In  favor  of  the  validity  of  sales  of 
such  collaterals  at  the  brokers'  board,  it  is  urged  that  there  is  the 
stock  market,  to  which  sellers  and  buj^ers  of  such  property  resort, 
and  where  competition  among  bidders  is  most  apt  to  be  found  ; 
and  that  such  sales  are  public,  and  should  be  supported,  unless 
in  particular  cases  there  be  some  ground  for  impeaching  their 
fairness.'^ 

If  the  contract  of  the  parties  contain  no  restriction  as  to  the 
mode  or  place  of  sale,  and  none  can  be  implied  from  any  estab- 
lished custom,  and  notice  of  a  sale  at  the  brokers'  board  be  duly 
given  to  the  debtor,  his  silence  in  regard  to  the  mode  of  sale  has 
been  held  to  estop  him  from  afterwards  taking  objection  to  it.^ 
If  a  creditor  be  authorized  to  sell  the  collateral  security  at 
public  or  private  sale,  at  his  discretion,  he  ma}''  properly  sell  at 
the  brokers'  board  ;  but  he  is  bound  to  exercise  the  authority 
under  a  trust  for  the  debtor's  benefit  as  well  as  his  own.  He  has 
no  right  to  force  a  sale  for  barely  enough  to  pay  his  claim,  when 
he  might  have  obtained  a  surplus.  But  he  need  not,  having  such 
a  power,  sell  stocks  at  auction  if  there  is  a  fair  market  for  them 
at  the  stock  exchange  or  brokers'  board.* 

1  Thus,  in  Wicks  v.  Hatch,  6  J.  &  'brokers  acquired  the  right  to  sell  for 

S.  (N.  Y.)  95,  the  stock  market  being  their  own  protection,  and  were  only 

excited,  and  the  customer  residing  out  bound  to  act  in  good  faith  and  in  the 

of  town,  it  was  expressly  agreed,  in  exercise  of   their  best  judgment  and 

writing,  that  the  brokers  should  sell  in  discretion.     Affirmed  62  N.  Y.  535. 

their  discretion,  at   public  or  private  ^  Maryland  Fire  Ins.  Co.  v.  Dalrym- 

sale,    without    any   notice    whatever,  pie,  25  Md.  242,  265;  Baltimore  Ma- 

whenever  the  margin  should  fall  below  rine    Ins.    Co.  v.  Ualrymple,  lb.   269. 

five  per  cent.,  the  stocks  having  been  Question  raised,  but  not   decided,  in 

purchased  on  a  larger  margin.     Under  Child  v.  Hujror,  41  Cal.  519. 

this  agreement  it  was    held  that  the  ^  Willoughby  v.   Comstock,   3   Hill 

customer  waived  all  right  to  notice  of  (N.  Y.),  389. 

deficiency  of    margin,   and   that   the  *  Sparhawk  v.  Drexel,  12  N.  Bank. 


SALE   UNDER  POWER.  [§§  738,  739. 

738.  But,  on  the  other  hand,  the  fact  remains,  that  a  sale 
at  the  brokers'  board  is  really  a  private  sale.  The  regulations 
of  the  board  exclude  all  but  members,  and  the  debtor  is  not  only- 
deprived  of  the  opportunity  of  seeing  that  the  sale  is  fairly  made, 
but  of  the  opportunity  of  arranging  to  get  the  best  price ;  and, 
therefore,  the  prevailing  and  better  rule  is,  that,  except  in  case 
the  creditor  has  specific  authority  to  sell  at  private  sale  without 
notice,  a  sale  at  the  brokers'  board  does  not  answer  the  require- 
ments of  the  general  law  of  pledges  requiring  a  sale  of  the  pledge 
to  be  at  public  auction.^ 

739.  Separate  lots.  —  Stock  or  bonds  pledged  to  a  person  at 
different  times,  to  secure  several  debts,  should  be  sold  in  separate 
lots,  whether  the  sale  be  under  order  of  court  or  without  such 
order.  Each  separate  debt,  in  such  case,  has  a  separate  security  ; 
and  a  sale  of  all  the  collaterals  in  gross,  and  an  application  of  the 
proceeds  to  the  entire  indebtedness,  might,  in  effect,  extend  the 
security  to  debts  unsecured,  or  secured  only  in  part,  and  might 
interfere  with  the  rights  of  other  parties.^ 

But  if  a  debtor  deliver  several  certificates  of  stock  to  secure  one 
debt,  the  creditor  is  not  bound,  in  selling  under  a  power  of  sale, 
to  divide  either  certificate,  though  representing  a  large  number  of 
shares  into  small  lots,  even  if  a  prudent  owner  having  regard 
solel}'  to  his  own  interests  would  have  done  so.^  The  pledgee  has 
no  right  to  sell  more  of  the  securities  pledged  than  is  necessary  to 
satisfy  the  debt,  if  they  are  susceptible  of  division  ;  and  if  he  does 
so,  he  is  responsible  for  the  damage  sustained  by  the  debtor.  The 
measure  of  damages  in  such  case  is  the  sum  necessary  to  replace 
the  securities  in  excess  of  what  it  was  necessary  to  sell,  less  the 
price  for  which  the  excess  was  sold,  if  that  has  been  paid  over  to 
the  debtor.* 

R.  450;  Castello  v.  City  Bank  of  Al-  648,  652;  Markham  v.  Jaudon,  41  N. 

bany,  1  N.  Y.  Leg.  Obs.  25,  per  Hoff-  Y.  235,  244.     See  Schej)eler  v.  Eisner, 

man,  J.;   Wicks  v.  Hatch,  38  N.  Y.  3  Daly  (N.  Y.),  11,  which,  however, 

Superior  Ct.  95.  is  not  good  law. 

1  Castello  y.  City  Bank  of  Albany,  *  Mahoney  v.  Caperton,  15  Cal.  313. 

supra;  Brown  v.  Ward,   3  Duer  (N.  *  Newsome  u.  Davis,  133  Mass.  343. 

Y.),  660;  Rankin  v.  McCullou^di,  12  *  Fitzgerald    v.    Blocher,   32    Ark. 

Barb.  (N.  Y.)  103,  107,  per  Edmonds,  742. 
J. ;  Brass  v.  Worth,  40  Barb.  (N.  Y.) 

35  645 


§§  740,  741.]      REMEDIES  UPON  PLEDGES   OF   STOCKS. 

740.  A  creditor  cannot  himself  become  the  purchaser  of 
collateral  bonds  or  stocks  sold  by  him  upon  his  debtor's  default. 
Such  a  purchase  does  not  change  the  creditor's  relation  to  his 
debtor  as  regards  the  collaterals  ;  but  these  are  still  held  by  the 
creditor  under  the  original  title,  as  security  for  the  original  debt. 
The  debtor,  in  order  to  obtain  another  sale  of  the  collaterals,  or 
to  redeem  them,  is  not  required  to  prove  that  the  creditor  made 
a  fraudulent  sale,  or  one  advantageous  to  himself,  but  only  that 
the  creditor  became  the  purchaser.  The  creditor,  in  selling  the 
collaterals,  is  in  the  position  of  a  trustee  for  the  debtor,  and  the 
law  will  not  allow  of  the  temptation  to  fraud,  or  the  possibility 
of  it,  through  the  trustee's  becoming  purchaser  at  his  own  sale.^ 

Objection  to  the  creditor's  purchasing  does  not  exist  to  the 
same  degree  when  the  sale  is  made  upon  a  decree  in  equity ;  for 
the  sale  is  not  then  under  the  control  of  the  creditor,  but  is 
made  by  a  disinterested  officer  designated  by  the  court.  Accord- 
ingly, authority  is  very  generally  given,  by  statute  or  by  de- 
cree, that  the  creditor  may  become  a  purchaser  at  a  judicial  sale 
made  for  his  benefit ;  or  such  authority  is  given  by  judicial  con- 
struction.2 

III.  Illegal  Sales  hy  the  Pledgee. 

741.  The  consequences  of  an  illegal  sale  of  stock  col- 
laterals is,  that  the  pledgor  may,  within  a  reasonable  time 
afterwards,  demand  their  return,  and,  upon  a  tender  of  the  debt, 
may  hold  the  pledgee  liable  in  damages  for  failure  to  return 
them.  But  the  pledgor  cannot  follow  the  collaterals  in  the  hands 
of  a  purchaser  in  good  faith  from  the  pledgee,  without  notice 
that  the  latter  held  them  in  pledge.  Before  the  pledgor  can 
redeem  them  from  the  purchaser,  or  recover  them  in  any  way 
from  him,  he  is  required  to  make  the  clearest  proof  of  the  pur- 
chaser's direct  knowledge  of  the  loan  and  pledge.^ 

The  consequence  is  the  same  if  a  pledgee  himself,  or  by  his 

1  §§  635-638;  Stokes  v.  Frazier,  72  and  see  Richardson  v.  Mann,  30  La. 

111.  428 ;  Bank  of  the  Old  Dominion  v.  Ann.  1060 ;  Wright  v.  Ross,  36  Cal.  414. 

Dubuque  &  Pacific  R.  R.  Co.  8  Iowa,  ^  Jones  on  Mortgages,  §  1636;  New- 

277;  Maryland  Fire  Ins.   Co.  v,  Dal-  port  &  Cincinnati  Bridge  Co.  t?.  Doug- 

rymple,  25  Md.  242;  Baltimore  Marine  lass,  12  Bush  (Ky.),  673,  720. 

Ins.  Co.  V.  Dalrymple,  lb.  269;  Bryson  ^  Little  v.  Barker,  HoflF.  (N.  Y.)  Ch. 

V.  Rayner,  lb.  424;  Star  Fire  Ins.  Co.  487;  Conyngham's  Appeal,  57  Pa.  St. 

V.  Palmer,  41  N.  Y.  Superior  Ct.  267;  474. 

546 


ILLEGAL   SALES  BY   PLEDGEE.  [§§  742,  743. 

agent,  purcliases  collateral  stock  upon  a  sale  for  default.  Nothing 
passes  by  tlie  sale,  and  the  pledgee  holds  the  pledge  by  his  orig- 
inal title  as  pledgee.  Only  a  bond  fide  purchaser  from  hini  can 
acquire  absolute  ownership  of  the  stock.^ 

742.  A  wrongful  sale  or  pledge  of  a  customer's  stock  by 
a  broker  does  not  prevent  his  recovering  for  the  purchase- 
money.  Such  sale  or  pledge  is  a  failure  to  perform  a  subsequent 
duty,  and  he  will  be  liable  for  the  injury  done  by  such  failure.  It 
is  not  a  breach  of  a  condition  precedent  which  will  prevent  his 
charging  his  customer  for  the  purchase  of  the  stock.^ 

In  an  action  by  a  stock-broker  to  recover  an  alleged  balance  on 
a  stock  transaction  where  the  broker  has  sold  stock  purchased  by 
him  on  a  margin,  and  held  in  pledge  to  secure  the  advance  made 
by  him  to  make  the  purchase,  he  does  not,  by  such  sale,  as  a 
matter  of  law,  extinguish  all  claim  against  the  customer  for  the 
advance.  The  stock-broker  is  liable  for  the  damages  sustained 
by  the  customer  through  the  wrongful  sale  of  the  stock,  but 
whether  the  damages  are  equal  to,  or  more  or  less  than  the 
amount  of  the  claim  for  the  purchase  of  the  stocks,  depends 
upon  the  facts  to  be  developed.^ 

After  such  illegal  or  irregular  sale  the  stock  still  remains  in 
pledge,  and  all  the  dividends  and  accretions  to  it  belong  to  the 
pledgor.* 

743.  A  debtor  will  lose  his  right  to  question  a  sale  of  his 
collateral  by  acquiescence,  or  by  his  failure  for  an  unreasonable 
length  of  time  to  institute  proceedings  to  impeach  the  sale.  The 
Eliot  National  Bank,  holding  certain  shares  of  the  Hecla  Mining 
Compan}^,  as  collateral  security  for  a  loan,  with  written  autliority 
to  sell  at  its  discretion,  notified  the  debtor  that  the  stock  would 
be  sold,  and,  accordingly,  did  sell  it  for  more  than  its  market 
value,  to  three  directors  of  the  bank,  and  applied  the  proceeds 
to  the  jjayment  of  the  loan.  A  statement  of  account  was  given 
to  the  debtor  after  the   sale,  and  he  was  informed  of  all  the 

^  Caiifield  V.  Minneapolis   Agricul-         8  Gruman   v.    Smith,  81   N.  Y.   25; 
tural  &  Mechanical  Asso.   (C.  C.  D.     anil  sec  Capron  d.  Thompson,  A-w/>m. 
Minn.  1883),  14  Fed.  Rep.  801.  ^  Conynghani's  ApiJcal,  57  Ta.  St. 

2  Capron    v.  Thompson,  86    N.  Y.     474. 
418;  .S'.  C.  13  N.  Y.  Weekly  Diy.  lOy. 

547 


§  744.]  REMEDIES  UPON  PLEDGES  OF   STOCKS. 

material  facts  respecting  the  sale,  including  the  fact  that  the  sale 
was  made  to  three  directors  of  the  bank.  Three  years  and  a  half 
after  the  sale,  the  stock  having,  in  the  mean  time,  greatly  increased 
in  value,  the  debtor  notified  the  bank  of  his  desire  to  redeem, 
and  filed  a  bill  in  equity  to  assert  a  right  of  redemption.  The 
Supreme  Court  held,  that  if  he  had  originally  any  right  to  ques- 
tion the  sale,  he  had  lost  this  right  by  delay  in  asserting  it.^  An 
account  rendered  is  regarded  as  allowed  by  the  party  receiving 
it,  unless  it  is  objected  to  within  a  reasonable  time  ;  and  what  is 
a  reasonable  time  depends  upon  the  circumstances  of  the  case, 
and  is  for  the  jury  to  determine.^ 

744.  A  customer  whose  stock  has  been  irregularly  sold 
by  his  broker  should  make  objection  to  the  sale  within  a 
reasonable  time,  else  he  may  by  his  silence  be  estopped  from 
disputing  the  sale.^  "  What  is  a  reasonable  time  must  depend 
upon  the  circumstances  of  each  case.  Property  of  most  kinds 
varies  in  value  but  little  from  week  to  week ;  but  stocks  are 
sensitive  to  every  breath  that  blows  ;  not  infrequently  they  fluc- 
tuate from  day  to  day,  and  in  times  of  financial  panic  the  steps 
in  their  decline  are  to  be  counted  by  hours,  if  not  by  minutes." 
In  illustration  of  this  statement  of  law,  and  of  the  reason  for  it, 
the  following  case  is  instructive.  On  the  seventeenth  day  of 
September,  1873,  a  firm  borrowed  of  brokers  sixteen  thousand 
dollars,  payable  the  next  day,  on  the  security  of  five  hundred 
shares  of  the  stock  of  the  Lehigh  Coal  and  Navigation  Company. 
On  the  day  of  the  loan  the  stock  was  selling  at  about  thirty-five 
dollars  per  share.  The  next  morning  the  failure  of  Jay  Cooke  & 
Co.  was  announced,  and  on  next  following  day  the  brokers  sold,  at 
'private  sale,  with  the  apparent  assent  of  the  borrowers,  a  part  of 
the  stock  at  twenty  dollars  per  share,  and  the  brokers  sold,  at  the 
brokers'  board,  the  remainder  of  the  stock  at  the  same  price.  The 
same  day  they  rendered  an  account  of  sales,  showing  a  balance 
of  four  thousand  dollars  due  upon  the  loan.  About  a  fortnight 
afterwards  they  rendered  another  account,  showing  the  same  bal- 
ance due  them.     In  the  month  of  December  following  the  brokers 

1  Hayward    v.   National   Bank,   96         »  Colket   v.   Ellis,  10  Pliila.  (Pa.) 
U.  S.  611.  375,  per  Mitchell,  J. 

2  Porter   v.    Patterson,    15  Pa.  St. 
229;  Bevan  v.  Cullen,  7  Pa.  St.  281. 

o4b 


ILLEGAL   SALES   BY   PLEDGEE.  [§  745. 

commenced  a  suit  for  the  recovery  of  this  balance  of  account. 
Early  in  February  following  the  borrowers  tendered  the  full 
amount  of  their  debt,  and  demanded  the  return  of  the  collateral 
stock.  In  the  mean  time  the  stock  had  greatly  risen  in  price 
until  it  had  reached,  at  the  time  of  the  tender,  the  price  of  forty- 
three  dollars  per  share.  It  was  held  that  this  delay,  for  about 
four  months,  to  object  to  the  sale  was  unreasonable,  and  that 
the  pledgors  were  thereby  estopped  to  dispute  the  sale.  Mr. 
Justice  Mitchell,  delivering  the  opinion  of  the  court,  said  upon 
this  point :  ^  "  Had  plaintiffs  promptly  objected  to  the  account, 
and  expressed  an  intention  to  hold  defendants  liable  for  the  con- 
version, the  latter  might,  on  the  27th  of  September,  have  bought 
back  the  stock  at  the  same  price  at  which  they  had  sold  it,  and 
avoided  this  present  controversy.  How  much  longer  the  stock 
remained  at  or  about  this  price  the  evidence  does  not  show, 
but  this  is  sufficient  to  demonstrate  the  importance  of  time  in 
the  question  of  ratification.  Probably  no  safer  way  of  specu- 
lating at  another's  risk  could  be  invented  than  to  make  default 
and  induce  a  sale  of  collaterals  on  a  depressed  market,  lie  quietly 
by  till  the  wave  had  passed  and  prices  were  up  again,  and  then 
tender  the  amount  of  the  debt,  with  legal  interest.  Under  the 
circumstances  of  this  case,  the  delay  of  four  months  in  objecting 
to  the  sale  was  so  unreasonable,  and  the  condition  of  defendants 
had  in  that  time  altered  so  materially,  that  it  would  be  contrary 
to  common  honesty  to  allow  the  plaintiffs  now  to  hold  the  de- 
fendants accountable  for  a  loss  which  was  caused  in  the  first 
instance  by  their  own  inability  to  perform  their  contract." 

745.  The  debtor,  by  accepting  the  surplus  proceeds  of  a 
sale,  may  waive  any  irregularity  in  the  sale,  and  debar  him- 
self of  the  right  afterwards  to  call  it  in  question.  Thus  United 
States  bonds  having  been  pledged  to  a  bank  to  secui'e  overdrafts 
without  any  special  power  of  sale,  the  bank  afterwards  sold  the 
bonds  at  private  sale  with  the  consent,  as  the  bank  claimed,  of 
the  debtor.  A  surplus  of  proceeds  was  placed  to  the  credit  of 
the  debtor  in  his  account  with  the  bank,  entered  upon  his  pass 
book,  and  drawn  out  by  him.  lie  afterwards  demanded  the  re- 
turn of  the  bonds,  and  brought  suit  therefor,  denying  that  he  had 
consented  to  the  sale.     Upon  the  trial  of  this  issue  the  jury  were 

1  Colket  V.  Ellis,  10  Tlilhi.  (Pu.)  3  75. 

519 


§  746.]  REMEDIES  UPON   PLEDGES   OF   STOCKS. 

rightly  instructed  in  substance,  that  if  they  found  that  the  sale 
was  made  by  the  consent  of  the  debtor,  or  that  he  knowingly 
accepted  the  credit  on  his  bank  account,  then  he  could  not  com- 
plain that  the  sale  was  not  made  in  accordance  with  the  law  of 
pledges,  unless  he  could  show  that  the  sale  was  not  fairly  made 
for  the  fair  market  value  of  the  bonds. ^ 

But  a  distinction  has  been  made  between  an  acceptance  of  the 
surplus  by  the  debtor  under  a  sale  which  he  knew  was  claimed  to 
have  been  made  with  his  consent,  and  an  acceptance  of  surplus 
arising  from  a  sale  made  under  authority  of  the  act  of  bailment ; 
the  acceptance  in  the  latter  case  being  regarded  as  no  waiver  of 
an  irregularity  in  the  sale.  The  sale  being  by  virtue  of  the  con- 
tract, it  is  said  that  the  acceptance  or  non-acceptance  after  the 
sale  is  no  evidence  of  the  legal  effect  of  the  contract.  The  ac- 
ceptance of  the  surplus  in  such  case,  it  is  declared,  does  not  estop 
the  debtor,  because  neither  by  this  act  nor  by  any  other  had  he 
induced  the  creditor  to  make  the  sale,  or  had  he  misled  him  to 
suppose  he  had  a  right  to  make  the  sale.^ 

746.  A  pledgor  by  bringing  an  action  for  money  had  and 
received  against  his  pledgee,  after  a  wrongful  sale  of  the 
property  pledged,  waives  the  tort  and  ratifies  the  sale.  If  the 
property  pledged  be  a  bond  of  the  United  States,  which  the 
pledgee  has  collected  in  gold  coin  at  a  time  when  such  coin  was 
at  a  premium,  the  pledgee  is  not  liable  in  such  action  to  account 
for  its  value  in  paper  currency ;  but  having  applied  the  gold  to 
the  payment  of  the  debt,  it  is  to  be  treated  as  any  other  cur- 
renc}",  so  far  as  it  was  applied  as  current  money  to  the  payment 
of  the  debt ;  but  that  the  surplus  was  to  be  accounted  for  at  its 
value  in  paper  money  or  in  gold.^  If  the  pledgor,  having  ten- 
dered the  amount  of  the  debt  before  the  collection  of  the  bond, 
had  brought  an  action  of  trover  for  the  conversion  of  the  bond, 
the  damages  would  have  been  the  value  of  the  bond  after  de- 
ducting the  amount  of  the  debt.* 

In  like  manner  a  debtor's  approval  of  an  account  and  promise 
to  make  good  a  deficiency  arising  from  the  sale,  made  with  full 

1  Hamilton  i\  State  Bank,  22  Iowa,  ^  Hancock  v.  Franklin  Ins.  Co.  114 

306,  per  Dillon,  J.  Mass.  155. 

*  Fitzgerald    v.   Blocber,    32    Ai-k.  ■*  Per   Morton,  J.,    in   Hancock   v. 

742.  Franklin  Ins.  Co.  supra. 

550 


ILLEGAL   SALES  BY  PLEDGEE.  [§§  747,  748. 

knowledge  of  the  facts  of  the  case,  are  a  sufl&cient  ratification  of 
the  sale.i 

747.  A  payment  of  a  deficiency  arising  upon  the  debt 
secured,  after  a  wrongful  sale  of  stocks  held  as  collateral 
security,  might,  under  ordinary  circumstances,  be  an  acqui- 
escence in  the  sale  ;  but  it  does  not  have  this  effect  if  it  be 
made  for  the  sole  purpose  of  releasing  other  securities  held  in 
pledge  by  the  creditor,  and  he  refuses  to  surrender  this  without 
such  payment.  Such  a  payment  is  not  a  voluntary  one.  Being 
procured  by  a  duress  of  goods,  it  is  no  more  voluntary  in  the  eye 
of  the  law  than  it  would  be  if  procured  by  duress  of  the  person.^ 

748.  An  action  of  trover  cannot  be  maintained  by  the 
pledgor  to  recover  the  value  of  stock  wrongfully  sold  by  the 
pledgee  without  a  tender  of  the  debt  secured.  The  wrongful 
sale  of  the  pledge  does  not  revest  the  immediate  right  of  posses- 
sion of  the  pledge  in  the  pledgee,  and  therefore  the  latter  cannot 
maintain  the  action  either  for  the  whole  value  of  the  shares  or  for 
nominal  damages.^  "  It  is  true  the  pledgor  has  such  a  property 
in  the  article  pledged  as  he  can  convey  to  a  third  person,  but  he 
has  no  right  to  goods  without  paying  off  the  debt,  and  until  the 
debt  is  paid  off  the  pledgee  has  the  whole  present  interest.  If 
he  deals  with  it  in  a  manner  other  than  is  allowed  by  law  for  the 
payment  of  his  debt,  then,  in  so  far  as  by  disposing  of  the  re- 
versionary interest  of  the  pledgor  he  causes  to  the  pledgor  any 
difficulty  in  obtaining  possession  of  the  pledge  on  payment  of 
the  sum  due,  and  thereby  does  him  any  real  damage,  he  com- 
mits a  legal  wrong  against  the  pledgor.  But  it  is  a  contradiction 
in  fact,  and  would  be  to  call  a  thing  that  which  it  is  not,  to  say 
that  the  pledgee  consents  by  his  act  to  revest  in  the  pledgor  the 
immediate  interest  or  right  in  the  pledge,  which,  by  the  bargain, 
is  out  of  the  pledgor  and  in  the  pledgee.  Therefore,  for  any 
such  wrong  an  action  of  trover  or  of  detinue,  each  of  which  as- 
sumes an  immediate  right  to  possession  in  the  plaintiff",  is  not 
maintainable,  for  that  right  clearly  is  not  in  the  plaintiff." '* 

1  Child  V.  HufTfT,  41  Cal.  519.  299;  §  420.    And  see  Donald  v.  Suck- 

2  Stenton  v.  Jerome,  54  N.  Y.  480.     Vmg,  L.  R.  1  Q.  B.  585. 

3  Ilalliday  v.  Holgate,  L.  R.  3  Ex.         *  Halliday   v.    Hulgate,  sujjra,  per 

WiUes,  J. 

551 


§§  749,  750.]      REMEDIES   UPON   PLEDGES   OF   STOCKS. 

But  in  case  the  pledgee  has  put  the  securities  beyond  his  reach 
by  an  illegal  sale  of  them,  it  is  said  that  the  pledgor  need  not 
make  a  formal  tender  of  the  amount  due,  nor  a  demand  for  the  se- 
curities, before  bringing  an  action  against  the  pledgee  to  redeem, 
or  an  action  for  the  conversion  of  the  securities.^  If  the  pledgee 
by  a  sale  has  put  it  out  of  his  power  to  return  the  securities,  a 
formal  tender  of  the  debt  and  a  demand  for  the  return  of  the  se- 
curities would  be  a  useless  ceremony,  which  the  law  never  requires.^ 
If,  however,  he  has  only  pledged  the  securities  in  good  faith,  and 
therefore  had  not  wholly  put  it  out  of  his  power  to  restore  them, 
a  demand  would  be  necessary  before  bringing  a  suit  for  damages.^ 

749.  That  a  debtor  must  pay  or  tender  the  amount  of  the 
debt  before  he  is  entitled  to  a  re-transfer  of  stock  held  by 
the  creditor  as  collateral  security,  is  a  proposition  that  is  too  clear 
to  need  authority  for  its  support.  But  a  transaction  may  be 
so  uncertain  in  its  character  as  to  require  a  decision  of  court  to 
determine  whether  the  debtor  is  to  first  pay  his  debt  or  the  cred- 
itor is  first  to  tender  the  stock.  Thus  the  purchaser  of  shares  of 
a  railroad  company  gave  his  note  for  the  purchase  money,  and 
the  seller  gave  him  an  agreement  wherein  he  agreed  to  deliver 
certain  certificates  of  stock,  and  recited  that  the  stock  had  been 
transferred  to  the  purchaser,  but  that  the  seller  was  to  hold  it 
for  the  payment  of  said  note.  In  an  action  upon  the  note,  it  was 
held  that  the  transaction  was  a  sale  of  the  stock  and  a  pledge  of 
it  for  the  purchase  money,  and  not  an  executory  agreement  to 
sell  it ;  and  that  therefore  the  plaintiff  wa'fe  not  bound  to  tender 
the  stock,  or  to  make  a  formal  transfer  of  it  upon  the  books  of  the 
company,  until  the  defendant  should  have  paid  the  note,  or,  at 
least,  have  tendered  payment  thereof  to  the  plaintiff.^ 

IV.    The  Pleasure   of  Damages  for  an   Illegal   Sale   of  Stock 

Collaterals. 

750.  The  general  rule  of  damages  in  actions  at  law  for 

1  Cortelyou    v.  Lansing,    2   Caines  ^  Fletcher    v.    Dickinson,    supra ; 

Cas.   (N,  Y.)    200,   203 ;    Wilson   v.  Read  v.  Lambert,  supra. 

Little,  2   N.  Y.  443,   449 ;    Read  v.  ^  Read  v.  Lambert,  supra. 

Lambert,  10  Abb.  (N.  Y.)  Pr.  N.  S.  *  James  i'.  Hamilton,  2  Hun  (N.Y.), 

428;  Lewis  v.  Graham,  4  Abb.  (N.  Y.)  630;  S.  C.  5  T.  &  C.  183;  affirmed,  63 

Pr.  106;  and  see  Fletcher  v.  Dickin-  N.  Y.  616. 
son,  7  Allen  (Mass.),  23. 
652 


DAMAGES   FOR  ILLEGAL   SALE   OF   STOCK  COLLATERALS.      [§  751. 

wrongful  conversion  of  stock  by  a  pledgee  is  the  value  of  the 
stock  at  the  time  of  its  conversion,  with  interest.^  This  rule  fol- 
lows the  general  rule,  that  in  an  action  on  a  contract  to  deliver 
goods,  stocks,  and  other  personal  property,  the  measure  of  dam- 
ages is  the  value  of  the  property  at  the  time  and  place  of  de- 
livery.2  "  In  trover,  the  general  rule,  both  in  England  and  the 
United  States,  undoubtedly  is,  that  the  current  or  market  value 
of  property  at  the  time  of  conversion,  with  interest  from  that 
time  until  the  trial,  is  the  true  measure  of  damages."  ^  lu  many 
of  the  cases  above  cited  the  doctrine  noticed  in  a  succeeding  sec- 
tion as  an  exception  to  this  general  rule  of  damages,  when  the 
subject  matter  of  the  action  is  a  conversion  of  stock  or  goods 
pledged,  or  a  failure  to  deliver  them  after  the  price  has  been  paid, 
is  expressly  examined  and  repudiated. 

751.  In  many  cases  the  time  of  conversion  will  be  fixed 
by  the  demand  for  the  return  of  the  stock,  and  therefore  in 
such  cases  the  value  of  the  stock  will  be  taken  at  the  time  of  the 
demand  in  fixing  the  measure  of  damages.*  If  the  time  of  con- 
version was  not  known  to  the  plaintiff  at  the  time  it  occurred,  it 
is  said  that  he  may  at  his  election  take  the  time  of  its  becoming 
known  to  him,  instead  of  the  time  of  the  actual  conversion,  as 
the  time  for  fixing  the  market  value  of  the  stock.^ 

1  As  in  New  Hampshire:  Pinker-  man  v.  American  Powder  Co.  8  Cush. 

ton  V.  :Manchester  &  Lawrence  R.  R.  168. 

Co.  42  X.  H.  424,  457;  Rand  v.  White  Mississippi  :  Bickell  v.  Colton,  41 

Mountains  R.  R.  Co.  40   N.  H.   79  ;  Miss.  368. 

Frothingham  v.  Morse,  45  N.  H.  545.  Nevada:  Boylan  v.  Huguet,  8  Nev. 

Illinois:    Loomis  v.  Stave,   72  111.  345;   and   see   Carlyon  v.  Lannan,  4 

623;    Sturges   v.  Keith,   57   111.  451;  Nev.  156;  O'Meara  v.  N.  A.  Mining 

-S'.  C.  Sedgwick's  Lead.  Cas.  on  Dam-  Co.  2  Nev.  113. 

ages,  606.  Vermont:  Hilly.  Smith,  32  Yt.  433. 

Iowa :  Robinson  v.  Hurley,  1 1  Iowa,  Virginia  :   Orange  &  Alexandria  R. 

410;  and   see   Safely  v.   Gilmore,  21  R.  Co.  v.  Fulvey,  17  Gratt.  366. 

Iowa,  ;j88.  2  Sedgwick  on  Damages,  p.  474  et 

Maryland:  Baltimore  Marine  Ins.  seq. ;  Field  on  Damages,  §  245. 

Co.  V.  Dalrymple,   25    Md.  242,  307,  s  Suydam  v.  Jenkins,  3  Sandf.  (N. 

per  Bartol,  J.;   Baltimore  City  Pas-  Y.)  614,  626,  per  Duer,  J. 

senger  Ry.  Co.  i).  Sewell,  35  Md.  238.  *  Baltimore  City  Passenger  Ry.  Co. 

Massachusetts  :   Fowle  v.  Ward,  v.  Sewell,  35  Md.  238,  257;  Piiikerton 

113  Mass.  518,  per  Ames,  J. ;   Gray  v.  v.  IMancbester  &  Lawrence  R.  R.  Co. 

Portland    Bank,  3   Mass.  364  ;    Ken-  supra. 

nedyi;.  Whitwell,  4  Pick.  466;  Green-  ^  O'Meara   v.    N.  A.    Mining   Co. 

field  Bank  v.  Leavitt,  17  Pick.  1 ;  ^Vy-  supra. 

653 


§§  752,  753.]      REMEDIES   UPON   PLEDGES   OF   STOCKS. 

752.  But  in  a  suit  in  equity  to  redeem  shares  pledged  as 
collateral  security  and  wrongfully  sold  by  the  pledgee,  the 
latter  may  be  charged  with  the  value  of  the  shares  at  the  time 
of  filing  the  bill.  "  If  the  sale  was  unlawful  and  void  as  against 
the  plaintiff,"  say  the  Supreme  Court  of  Massachusetts,^  "  he 
is  entitled  to  all  the  advantages  that  he  could  have  had  from  the 
shares  if  they  had  not  been  sold  at  all.  Among  those  advantages 
•is  the  right  of  judging  for  himself  whether  to  keep  or  to  sell 
them,  and  as  to  the  best  time  to  sell,  if  he  should  see  fit  to  sell 
them.  To  place  him  substantially  in  the  same  position  as  if  the 
wrongful  act  of  the  defendant  had  not  occurred,  would  require 
that  he  should  recover  for  damages  a  sum  of  money  which  would 
enable  him  to  purchase  new  shares  to  replace  those  which  have 
been  taken  from  him,  with  such  additional  sum  as  would  indem- 
nify him  for  the  dividends  which  he  has  lost  since  the  sale,  and 
also  an  equitable  allowance  for  interest.  It  is  in  vain  for  the  de- 
fendant to  insist  that  when  he  made  the  sale  he  obtained  the  full 
market  price  of  that  time.  The  plaintiff  was  not  a  party  to  that 
sale,  and  was  not  bound  by  it.  The  defendant  had  no  right  to 
make  the  sale.  All  that  he  could  lawfully  do  was  to  hold  the 
shares,  and  have  them  forthcoming  for  the  true  owner  on  demand. 
But  instead  of  so  doing,  he  by  his  own  fault  has  caused  the  plain- 
tiff to  lose  them,  and  the  only  equitable  remedy  is  to  replace  them, 
or  to  enable  the  plaintiff  to  do  so  for  himself.  In  the  common 
law  action  of  trover,  the  rule  of  damages  is  undoubtedly  the  value 
of  the  chattel  in  controversy  at  the  time  of  the  conversion.  So 
also  in  an  action  for  the  non-fulfilment  of  a  contract  to  deliver 
stock,  the  measure  of  damages  would  ordinarily  be  the  value  at 
the  time  when  it  should  have  been  delivered,  or  if  no  time  of  de- 
livery had  been  named  in  the  contract,  the  time  when  it  was 
demanded.  But  in  the  case  before  us  the  plaintiff  seeks,  and  is 
entitled  to  have,  the  specific  equitable  remedy  of  being  replaced 
in  his  original  position.  His  claim  is  not  damages  for  breach  of 
a  contract  or  for  a  wrongful  conversion  of  property,  but  to  com- 
pel the  reconveyance  of  shares  which  ought  to  be  in  the  defend- 
ant's hands  at  this  moment." 

753.  In  England,  and  in  some  of  the  American  States,  an 
exception  to  this  general  rule  of  damages  is  made  in  cases  of 

1  Fowler.  Ward,  113  Mass.  548. 

554 


DAMAGES   FOR  ILLEGAL   SALE   OF   STOCK   COLLATERALS.       [§  753. 


loans  of  goods  oi*  stocks  ;  in  cases  of  contracts  to  deliver  them 
where  the  price  has  been  paid  ;  and  in  cases  of  failure  to  return 
such  property  when  it  has  been  pledged,  and  the  debt  secured 
has  been  paid.^  The  distinction  rests  upon  the  ground  that  the 
defendant  having  got  the  plaintiff's  money,  and  thereby  having 
deprived  him  of  the  means  of  going  into  the  market  and  pur- 
chasing the  same  property  at  the  market  prices  then  prevailing, 
the  plaintiff  should  be  allowed  to  elect  the  value  at  the  time  the 
property  should  have  been  delivered,  or  the  value  at  the  time  of 
trial,  or,  perhaps,  the  value  at  any  intermediate  period.  Thus, 
in  Shepherd  v.  Johnson, ^  in  an  action  for  breach  of  an  engage- 
ment to  replace  borrowed  stock  on  a  given  day,  the  highest  value 
as  it  stood  at  the  time  of  trial  was  taken  as  the  measure  of 
damages,  Grose,  J.,  saying:  "The  true  measure  of  damages  is 
that  which  will  completely  indemnify  the  plaintiff  for  the  breach 
of  the  engagement.  If  the  defendant  neglect  to  replace  the 
stock  at  the   day   appointed,  and  the  stock  afterwards  rise  in 


1  West  V.  Pritchard,  19  Conn.  212. 
The  court,  after  stating  the  general 
rule  that  the  damages  for  a  breach  of 
contract  to  deliver  any  article  is  the 
value  of  it  at  the  place  and  time  of 
delivery,  say:  "But  to  this  general 
rule  an  exception  has  been  made  in 
many  of  the  modern  cases.  And  that 
is,  where  the  price  of  the  goods  is 
paid  in  advance,  and  the  vendor  sub- 
sequently refuses  to  deliver  them,  the 
purchaser  is  not  confined  to  their  value 
at  the  time  when  they  should  have 
been  delivered,  but  if  the  goods  have 
risen  in  value,  he  may  recover  their 
value  at  the  time  of  trial.  But  this 
exception  does  not  apply  where  a  con- 
tract is  made  for  the  purchase  of  goods 
which  are  to  be  paid  for  when  de- 
livered. There,  as  nothing  is  paid  by 
the  purchaser  upon  the  contract,  lie 
has  the  money  in  his  possession,  and 
may,  immediately  after  the  contract 
is  broken  by  the  defendant,  purchase 
other  goods;  and  if  he  sustains  any 
loss  by  neglecting  to  do  so,  the  fault 
is  his  own.  He  cannot  avail  himself 
of  any  subsequent  rise  of  the  articles 


in  his  action  for  their  non-delivery. 
.  .  .  Although  the  exception  to  the 
rule  seems  not  to  have  been  univer- 
sally adopted,  yet,  in  our  opinion,  it 
appears  to  be  founded  upon  principles 
of  natural  justice.  The  effect  is  to 
give  indemnity  to  the  injured  party, 
who  has  been  induced  to  part  with  his 
property,  relying  upon  the  engagements 
of  another."  See,  also,  in  recognition 
of  this  exception  to  the  rule,  Shepherd 
V.  Hampton,  3  Wheat.  200,  204,  per 
Marshall,  C.  J.;  Clark  v.  Piuney,  7 
Cow.  (N.  Y.)  681;  Arnold  v.  Suffolk 
Bank,  27  Barb.  (N.  Y.)  42-4.  Kent 
V.  Ginter,  23  Ind.  1 ;  Randon  v.  Bar- 
ton, 4  Tex.  289;  Stephenson  v.  Price, 
30  lb.  715. 

2  2  East,  211  ;  followed  in  M' Ar- 
thur V.  Seaforth,  2  Taunt.  257;  Green- 
ing V.  Wilkinson,  1  C.  &  P.  G25  ;  Gains- 
ford  V.  Carroll,  2  B.  &  C.  624;  Downes 
V.  Back,  1  Starkie,  318;  Harrison  v. 
Harrison,  1  C.  &  P.  412;  Archer  v. 
Williams,  2  Car.  &  Kir.  26  ;  Owen  v. 
Routh,  14  C.  B.  327;  West  v.  Wcnt- 
worth,  3  Cow.  (N.  Y.)  82;  Clark  v. 
Pinney,  7  lb.  681. 

555 


§  754.]  REMEDIES  UPON   PLEDGES   OF   STOCKS. 

value,  the  plaintiff  can  only  be  indemnified  by  giving  him  the 
price  of  it  at  the  time  of  the  trial.  And  it  is  no  answer  to  say 
that  the  defendant  may  be  prejudiced  by  the  plaintiff's  delaying 
to  bring  his  action  ;  for  it  is  his  own  fault  that  he  does  not  per- 
form his  engagement  at  the  time ;  or  he  may  replace  it  at  any 
time  afterwards,  so  as  to  avail  himself  of  a  rising  market." 

754.  This  exception  had  its  origin  in  England  in  actions 
for  stock  loaned,  or  purchased  and  paid  for.     Stocks  are  sub- 
ject to  wide  fluctuations  in  price,  and  in  case  the  market  price 
had  advanced   between  the  time  of  the  breach  of  the  contract 
and  the  trial,  it  was  assumed  that  the  plaintiff  could  be  com- 
pletely indemnified  only  by  allowing  him  the  value  of  the  stock 
at  the  time  of    trial,  or  the  highest  value,  up  to  that  time,  as 
damages.     But  this  rule  presupposes  that  the  stock  was  intended 
for  a  permanent  investment,  and  that  the  plaintiff  would  have 
kept  it  until  the  time  of  trial.     These  presumptions  may  be,  and 
often   are,  against  the  fact.     The  plaintiff,  moreover,  by  being 
allowed  to  elect  the  time  at  which  the  stock  shall  be  valued, 
is  able  to  make  the  measure  of  damages  depend  upon  his  own 
strategy  rather  than  upon  any  fixed   or  definite  rule.     "  Stocks 
that  cost  the  owner  little  or  nothing  now  and   then  advance  to 
par,  and  above.     Suppose  the  owner  of  such  stocks  should  pledge 
them  when  not  worth  ten  cents  on  the  dollar,  and   the  pledgee 
convert  them.     They  cost  the  owner  little  or  nothing.     Circum- 
stances arise,  however,  which  enhance  their  value.     By  delaying 
his  suit,  or  the  trial  of  it,  until  these  circumstances  have  had 
their  full  effect,  the  plaintiff,  by  invoking  the  aid  of  the  pre- 
sumptions, 1st,  that  he  had  parted  with  his  money  for  the  stock ; 
2d,  that  he  obtained  the  stock  as  a  permanent  investment ;  and, 
3d,  that  it  is  to  be  presumed  that  he  would  have  kept  it  until  the 
time  of  the  trial,  can  elect  to  take  the  market  value  at  the  time 
of  trial,  when  each  of  these  presumptions  is  as  baseless  as  the 
fabric  of  a  dream.     Such  a  rule,  instead  of  being  general,  fixed, 
and  certain,  is  merely  speculative,  conjectural,  and  dependent 
upon  accidental  circumstances."  ^ 

The  condition  of  one  who  has  pledged  stock  for  less  than  its 

1  Sturges  V.  Keith,  57  111.451,  462  ;  this  exceptional  rule  of  damages,  and 

S.  C.  Sedgwick's  Lead.  Cas.  on  Dam-  criticisms  upon  it,  see  2  Sedgwick,  on 

ages,  606.     For  an  able  discussion  of  Damages,  p.  481,  marginal  note. 
556 


DAMAGES   FOR  ILLEGAL   SALE   OF   STOCK   COLLATERALS.       [§  755. 

value,  in  an  action  for  its  conversion  by  the  pledgee,  is  analogous 
to  the  case  of  a  purchaser  of  stock  who  has  advanced  his  pur- 
chase-money, and  has  brought  suit  for  failure  of  tlie  vendor  to 
deliver  it ;  and  therefore  the  same  rule  of  damages  is  adopted  by 
courts  that  have  adopted  the  foregoing  exception  to  the  general 
rule. 

755.  The  highest  market  value  of  the  converted  stock 
up  to  the  time  of  trial  has  been  taken  in  some  courts  as  the 
measure  of  damages  for  the  conversion,  provided  the  suit  is 
brought  without  unreasonable  delay.^  The  object  sought  to  be 
attained  by  this  rule  seems  to  be  to  place  the  plaintiff  in  the 
same  situation  he  would  have  been  in  e:5tcept  for  the  wrongful 
conversion  of  his  stock.  This  rule  proceeds  upon  the  assumption 
that  the  plaintiff  would  have  retained  his  stock  till  the  day  of 
trial,  or  till  it  had  reached  its  highest  price  prior  to  that  day,  and 
then  would  have  sold  it,  and  hence  that  its  price  at  that  time 
would  be  the  proper  indemnity  for  him.  The  courts  of  New- 
York,  in  adopting  this  rule  in  regard  to  stocks,  follow  the  rule 
of  damages  adopted  in  that  state  in  relation  to  other  property. 
But,  on  the  other  hand,  the  courts  of  Pennsylvania,  while  reject- 
ing this  rule  in  regard  to  other  property,  adopt  it  in  reference  to 
stocks.2  "The  case  of  stock,"  say  the  Supreme  Court  of  Penn- 
sylvania, "  is  an  exception  to  the  general  rule  applicable  to  chat- 
tels.^    It  is  made  an  exception  in  obedience  to  the  paramount 

1  As  in  New  York  :  Markbara  v.  either  case  the  party  entitled  to  the 
Jaudon,  41  N.  Y.  235;  Romaine  v.  delivery  parts  with  his  property  on  the 
Van  Allen,  26  N.  Y.  309  ;  Kortright  faith  of  the  contract,  and  in  either 
V.  Commercial  Bank  of  Buffalo,  20  case  is  prevented  from,  using  it,  up  to 
"Wend.  91,  per  Verplanck,  Senator;  the  time  of  trial.  The  question  is, 
Wilson  V.  Little,  1  Sandf.  351  ;  Allen  whether,  in  either  case,  the  law  should 
V.  Dykers,  3  Hill,  593;  aflirmed,  7  lb.  act  on  the  assumption  that  the  plain- 
497;  and  see  Lobdell  v.  Stowell,  51  N.  tiff  would  have  retained  the  property 
Y.  70,  affirming  the  principle  of  these  if  the  contract  had  been  complied 
cases.  Ohio  :  Bates  v.  Wiles,  1  with,  till  the  period  of  highest  value, 
Handy,  532.  and  have  realized  that  price,  and  thus 

2  In  regard  to  this  distinction,  Mr.  give  damages  which  are  purely  con- 
Sedgwick,  in  his  work  on  Damages,  jcctural." 

p.  273,  says:  "There  appears  no  solid  »  Bank  of  Montgomery  v.  Reese,  26 

reason  for  making  any  difference  be-  Pa.    St.   143  ;   and  see   Conyingham's 

tween   stock   and   any  other  vendible  Appeal,  5  7  I*a.  St.  4  74 ;    Musgrave   v. 

commodity.     Where  stock   is   loaned,  Beckendorff,  53  Pa.  St.  310.     But  the 

or  the  price  of  the  article  paid  for,  in  principle  of  these  cases   ajiiilies  only 

557 


§  756.]  REMEDIES   UPON   PLEDGES   OF   STOCKS. 

obligation  to  indemnify  the  party  for  his  loss.  The  rule  of  con- 
venience gives  place  to  the  rule  of  justice.  The  moment  we 
proceed,  on  this  ground,  to  take  it  out  of  the  general  rule,  we 
are  obliged  to  substitute  one  that  will  do  complete  justice  to  the 
party  injured.  'The  question  is,  what  did  the  plaintiff  lose?'^ 
He  is  entitled  to  all  the  advantages  he  could  have  derived  from 
the  stock,  if  it  had  been  delivered  at  the  specified  time.^  Those 
advantages  are  the  highest  market  value  between  the  breach  and 
the  trial,  together  with  the  bonus  and  dividends  which  have  been 
received  in  the  mean  time."^  In  a  later  case,^  Judge  Sharswood 
of  the  same  court,  after  stating  the  general  rule  as  to  the  measure 
of  damages  to  be  that  the  goods  are  to  be  valued  at  the  time  of 
the  conversion,  that  this  rule  has  been  modified  as  to  stocks, 
bonds,  and  securities  of  a  like  nature,  says  :  "  The  rule,  however, 
is  not  changed,  but  onl}^  modified  to  this  extent,  that  wherever 
there  is  a  duty  or  obligation  devolved  upon  a  defendant  to  de- 
liver such  stocks  or  securities  at  a  particular  time,  and  that  duty 
or  obligation  has  not  been  fulfilled,  then  the  plaintiff  is  entitled 
to  recover  the  highest  price  in  the  market  between  that  time  and 
the  time  of  the  trial.  The  grounds  of  this  .exception  are,  that 
such  securities  are  limited  in  quantity,  are  not  alwa^^s  to  be  ob- 
tained at  any  price,  and  are  of  a  very  fluctuating  value." 

756.  But  the  better  opinion  is  that  this  rule  of  danaages 
is  applicable  only  in  special  exceptional  cases  ;  ^  and  it  seems 
clear  that  it  cannot  be  properly  applied  to  a  conversion  of  stocks 
not  held  as  an  investment  but  carried  upon  a  margin,  with  a  view 

where  the  plaintiff  suffers  loss  in  the  stocks;  Matthews  v.  Coe,  49  N.  Y.  57, 
advance   price  of   the  stock   through  62.     In  the  latter  case  Chief  Justice 
the  defendant's  refusal  to  perform  his  Chui'ch  said:    "An    unqualified  rule, 
contract.     Phillip's  Appeal,  68  Pa.  St.  giving  a  plaintiff  in  all  cases  of  con- 
130  version  the  benefit  of  the  highest  price 
^  Kinirael  v.  Stoner,  18  Pa.  St.  155,  to  the  time  of  trial,  1  am  persuaded 
157.  cannot   be   upheld    upon   any    sound 
2  Harrison  r.  Harrison,  1  C.  &  P.  412.  principle  of   reason   or  justice.     Nor 
2  Vaughan  y.  Wood,  1   Mylne  &  K.  does  the  qualification  suggested  in  some 
403.  of  the  opinions,  that  the  action  must 
*  Neiler  v,  Kelley,  69  Pa.  St.  403.  be    commenced    within   a   reasonable 
^  Suydam  v.  Jenkins,  3  Sandf.  (N.  time  and  prosecuted  with  reasonable 
y.)    614,  per  Duer,  J.,  who  ably  re-  diligence,  relieve  it  of  its  objectionable 
views  the  whole  subject,  though  the  character."     See,  also,  Bryan  v.  Bald- 
case  did  not  relate  to  a  conversion  of  win,  52  N.  Y.  232,  236. 

558 


DAMAGES   FOR   ILLEGAL   SALE   OF   STOCK   COLLATERALS.        [§  756. 

to  making  a  profit  by  tbeir  sale.  In  a  case  of  tlie  latter  kind, 
the  proper  rule  of  damages  is  the  price  the  plaintiff  would  have 
been  obliged  to  pay  in  the  market  to  replace  the  stocks  on  a  day 
within  a  reasonable  time  after  the  wrongful  sale.  In  Baker  v. 
Drake,^  this  rule  was  established  by  the  New  York  Court  of  Ap- 
peals. "  If  the  broker  has  violated  his  contract,  or  disposed  of 
the  stock  without  authority,  the  customer  is  entitled  to  recover 
such  damages  as  would  naturally  be  sustained  in  restoring  himself 
to  the  position  of  which  he  has  been  deprived.  He  certainly  has 
no  right  to  be  placed  in  a  better  position  than  he  would  be  in  if 
the  wrong  had  not  been  done.  But  the  rule  adopted  in  Mark- 
ham  V.  Jaudon,2  passing  far  beyond  the  scope  of  a  reasonable  in- 
demnity to  the  customer  whose  stocks  have  been  improperly  sold, 
places  him  in  a  position  incomparably  superior  to  that  of  which 
he  was  deprived.  It  leaves  him,  with  his  venture  out,  for  an  in- 
definite period,  limited  only  by  what  may  be  deemed  a  reason- 
able time  to  bring  a  suit  and  conduct  it  to  its  end.  The  more 
crowded  the  calendar,  and  the  more  new  trials  granted  in  the 
action,  the  better  for  him.  He  is  freed  from  the  trouble  of  keep- 
ing his  margins  good,  and  relieved  of  all  apprehension  of  being 
sold  out  for  want  of  margin.  If  the  stock  fall  or  become  worth- 
less he  can  incur  no  loss ;  but  if  at  any  period,  during  the  months 
or  years  occupied  in  the  litigation,  the  market  price  of  the  stock 
happens  to  shoot  up,  though  it  be  but  for  a  moment,  he  can  at 
the  trial  take  a  retrospect,  and  seize  upon  that  happy  instant  as 
the  opportunity  for  profit  of  which  he  was  deprived  by  his  trans- 
gressing broker,  and  compel  him  to  replace  with  solid  funds  this 
imaginary  loss." 

A  similar  qualification  of  the  rule  allowing  the  highest  inter- 
mediate value  has  been  made  in  California.  "  The  time  of  the 
commencement  of  the  action  or  trial,"  say  the  court,^  "  would 
not  seem  to  have  any  natural  or  logical  connection  or  relation  to 
the  question  of  damages  ;  and  the  question  as  to  whether  a  suit 

1  53  N.  Y.  211,  217;    S.  C  13  Am.  The   rule    laid   down    in    Baker  v. 

Rep.  507  ;  affirmed  in  same  case  again  Drake,  mpra,  has  since  been  affirmed 

before  the  court,  66  N.  Y.  518;  and  in    Gruman    v.  Smith,  81    N.  Y.  25; 

see    Scott   v.   Rogers,  31    N.  Y.   676;  Colt  w.  Owens,  90  N.  Y.  3G8. 

Matthews  v.    Coe,  49   N.  Y.  57,  per  ^  See  §  755. 

Church,  C.  J.;  Whelan  v.  Lynch,  60  ^  Pacre  r.  Fowler,  39  Cal.  412;  S.  C. 

N.  Y.  469;  Brass  v.  ^^'orth,  40  Barb.  Sedgwick's  Lead.   Cas.  on  Damages, 

(N.  Y.)  648.  597. 

559 


§  757.]  REMEDIES  UPON  PLEDGES   OF  STOCKS. 

was  or  was  not  commenced  within  a  reasonable  time  would 
rarely,  if  ever,  depend  upon  any  fact  which  would  affect  the  in- 
demnity to  which  the  plaintiff  is  entitled.  The  reasonable  time 
mentioned  in  the  cases  cannot  mean  a  reasonable  time  within 
which  to  commence  the  action  independently  of  the  question  of 
damages.  It  must  mean  a  time  within  which  it  would  be  reason- 
able to  allow  the  plaintiff  to  take  the  highest  market  price  as  the 
measure  of  his  damages.  In  other  words,  the  rule  reducible  from 
the  authorities  is,  that  in  cases  affecting  property  of  a  fluctuating 
value,  where  exemplary  damages  are  not  allowed,  the  correct 
measure  of  damages  is  the  highest  market  value  within  a  reason- 
able time  after  the  property  was  taken,  with  interest  computed 
from  the  time  such  value  was  estimated." 

757.  The  true  measure  of  damages  for  a  broker's  unauthor- 
ized sale  of  his  customer's  stock  is  the  difference  between  the 
price  for  which  the  stock  was  sold  and  its  market  price  within 
such  reasonable  time  after  notice  of  the  wrongful  sale  as  would 
enable  the  customer  to  replace  the  stock,  in  case  such  market 
price  should  exceed  the  price  for  which  the  sale  was  made.  The 
customer  is  entitled  to  the  damages  sustained,  but  he  can  claim 
no  greater  benefit  than  would  have  accrued  to  him  if  the  wrongful 
sale  had  not  been  made.  If,  for  instance,  the  price  of  the  stock 
does  not  advance  again  after  the  sale,  but  declines  still  more,  it  is 
clear  that  the  customer,  instead  of  being  injured  by  the  sale,  is 
really  benefited  by  it.^ 

Accordingly,  where  it  appeared  that  the  customer  could  have 
purchased  the  stock  at  any  time  within  thirty  days  after  an  un- 
authorized sale  by  his  broker,  for  a  less  price  than  that  at  which 
it  was  sold,  it  was  held  that  the  customer  was  entitled  to  recover  v 
only  nominal  damages  for  such  unauthorized  sale.^ 

1  Gruman  v.  Smith,  81  N.  Y.  25;  affirmed  by  Ct.  of  Appeals  (Nov.  21, 
Colt  V.  Owens  (N.  Y.  Superior  Ct.  1882),  15  lb.  439;  S.  C.  90  N.  Y.  368. 
1881),   13   N.    Y.   Weekly  Dig.   40;         ^  Coll  v.  Owens,  suj)ra. 

560 


INDEX. 


Reference  is  to  Sections. 

ACCEPTANCE.     §ee  Bill  of  Exchange. 

ACCESSIONS  to  the  pledged  property  are  covered  by  the  lien,  32, 

33. 
ACCOMMODATION  PAPER,  holder  of,  ia   pledge  for  preexisting 
debt,  122. 

it  does  not  matter  that  holder  has  notice  of  fact,  123. 

may  be  effectually  pledged  for  preexisting  debt,  124. 

note  held  as  collateral,  discharged  by  tender  of  principal  debt, 
547. 

pledgee  may  enforce  before  collecting  principal  debt,  673. 

in  suit  upon,  pledgee  can  recover  only  to  extent  of  debt  secured, 
676. 
ACTION.     See  Remedies. 
ADMINISTRATOR.     See  Executor. 
AGENT,  pledgor  may  act  for  pledgee  in  selling  pledged  goods,  43. 

holding  negotiable  paper  can  effectually  pledge  it,  96. 

of  debtor,  misapplication  of  negotiable  securities  by,  97. 

no  power  to  pledge  goods  of  principal,  327. 

when  not  a  factor  vpithin  the  factors'  acts,  344. 

to  be  a  factor  his  business  must  end  in  a  sale,  345. 

whose  authority  to  sell  has  been  revoked,  347. 

misapplication  of  negotiable  collaterals  by  pledgee's  agent,  565. 
AGREEMP^NT  to  pledge  distinguished  from  actual  pledge,  28. 

to  pledge  amounts  to  nothing  as  security,  29. 
ALABAMA,  statute  regulating  transfer  of  stock,  181. 

pledgor's  interest  subject  to  garnishment,  375. 
APPLICATION  of  payments.     See  Payment. 
APPROPRIATION  of  payment.^.     See  Payment. 
ARKANSAS,  statute  regulating  transfer  of  stock,  182. 
ASSIGNMENT  by  pledgor  of  his  interest,  364-371. 
is  subject  to  lien  of  the  pledge,  364. 

3G  561 


INDEX. 

Reference  is  to  Sections. 

ASSIGNMENT  —  continued. 

gives  only  pledgor's  interest,  365. 
notice  to  assignee  of  the  pledge,  367. 
notice  by  assignee  of  the  assignment,  368. 
action  for  prior  conversion  of  the  pledge,  369. 
assignee  entitled  to  redeem,  370. 
Of  pledge  by  pledgee,  418-428. 
pledgee's  assignee  stands  in  his  place,  418. 
of  pledge  without  the  debt,  419. 
original  contract  not  destroyed  by,  420. 
no  implication  of  law  that  pledgee  will  keep  possession,  421. 
pledgor  cannot  maintain  trover  in  consequence  of,  422. 
can  pass  no  greater  interest  than  pledgee  has,  423. 
except  in  case  of  negotiable  paper,  424. 
ATTACHMENT,  whether  shares  transferred  merely  by  delivery  of 
certificate  subject  to,  177. 
of  shares  with  knowledge  of  prior  equitable  transfer,  179. 
Liahility  of  pledgor  s  interest  to,  372-392. 
not  liable  at  common  law,  372. 
not  subject  to  trustee  or  garnishee  process,  373. 
statutes  of  several  states  in  regard  to  attaching  pledgor's  interest, 
374-392. 
Cf  pledged  property  by  pledgee,  599-601. 

pledgee  generally  waives  by  attaching  same  property,  599. 
but  may  attach  other  property  of  pledgor,  599. 
cannot  attach  pledged  goods  in  hands  of  his  agent,  599. 
may  attach  same  goods  on  other  demand,  601. 

BANKRUPTCY  AND  INSOLVENCY.     Upon  bankruptcy  of  the 
pledgor,  pledgee  still  holds  the  pledge,  584. 
assignee  holds  subject  to  same  equities  as  the  debtor,  585. 
assignee   who   collects    securities   must   apply   the   proceeds    to 

pledgee's  benefit,  586. 
pledgee  may  prove  his  whole  claim,  587. 
rule  that  the  value  of  security  must  be  deducted  before  proof, 

588. 
of  debtor  does  not  deprive  pledgee  of  right  to  sell,  724. 
BILL   IN   EQUITY.     See  Equity  ;   to  redeem  pledge,  see  Redemp- 
tion. 
BILL   OF   EXCHANGE,  whether  bill  of  lading  secures  acceptance 
or  payment  of,  255. 
562 


INDEX. 

Reference  is  to  Sections* 

BILL  OF  -EXCHANGE  — conthiued. 

bill  of  lading  secures  acceptance  of  when  on  time,  256. 

when  bank  may  surrender  on  acceptance,  257. 

by  agreement  bill  of  lading  may  secure  payment,  258. 

such  agreement  may  be  proved  by  parol,  259. 
title  of  pledgee  divested  by  acceptance  or  payment,  260. 
BILL   OF   LADING,  pledge  of,  227-279. 
Is  a  symbol  of  property,  227-232. 

transfer  of  makes  effectual  pledge  of  the  goods,  228. 

delivery  of  is  a  symbolical  delivery  of  the  goods,  229. 

represents  the  property,  230. 

indorsement  of  in  pledge  passes  special  property  in  the  goods, 

231. 
preexisting  debt  sufficient  consideration  for  pledge  of,  232. 
Soto  far  negotiable,  233-244. 
is  quasi  negotiable,  233. 

statutory  provisions  in  several  states,  234^240. 
qualities  of  negotiable  notes  cannot  be  given  by  statute,  241. 
rights  of  pledgee  of  bill  of  lading  are  those  of  a  pledgee  of  the 

property,  242. 
indorsement  by  shipper  assigns  his  title,  243. 
pledge  by  one  not  the  owner  gives  no  title,  244. 
How  far  binding  upon  carrier,  245-254. 

represents  goods  to  be  in  hands  of  carrier,  245. 
not  binding  upon  carrier  when  signed  by  agent,  if  goods  not  de- 
livered, 246. 
statutory  enactments  on  this  subject,  247. 

master  of  vessel  cannot  bind  owner,  if  goods  not  received,  248. 
carrier  on  land  has  same  rights  in  this  respect,  249. 
custom  cannot  make  negotiable,  250. 

carrier  not  estopped  to  deny  that  he  has  received  the  goods,  251. 
exceptional  doctrine  in  New  York,  252. 
may  be  operative  as  a  pledge,  though  not  binding  upon  carrier, 

253. 
spurious  bill  does  not  avail  against  genuine,  254. 
Whether  security  for  accejytance  or  payment,  255-260. 
is  security  for  acceptance  of  time  draft,  256. 
bank  may  surrender  on  acceptance,  257. 
secures  payment  when  so  agreed,  258. 

agreement  to  this  effect  may  be  proved  by  parol,  259. 
title  of  pledgee  divested  by  acceptance  or  payment,  260. 

503 


INDEX. 

Reference  is  to  Sections. 

BILL  OF  LADING  —  continued. 
Bow  pledged,  2Ql-2e5. 

drawn  to  order  should  be  indorsed,  261. 

but  may  be  delivered  without  indorsement,  262. 
not  to  order  may  be  pledged  by  delivery,  263. 
third  person  paying  draft  secured  is  vested  with  title,  264. 
pledgee  by  delivery  may  maintain  replevin  for  the  goods,  265. 
Pledgee's  rights  as  against  consignor,  266,  267. 

vendor's  right  of  stoppage  in  transitu  defeated,  266. 
so  far  as  concerns  the  pledgee,  267. 
Pledgee's  rights  as  against  the  consignee,  268-272. 

consignee  obtains  title  only  upon  paying  or  accepting  draft,  268. 

obtaining  goods  without  accepting  drafts,  269. 
pledgee  may  deliver  possession  of  goods  to  consignee,  270. 
inaknig  goods  deliverable  to  consignor's  order,  271. 
pledgee  not  affected  by  secret  agreement  between  consignor  and 
consignee,  272. 
Pledgee's  rights  against  carrier,  273-277. 

for  delivering  goods  to  any  other  person,  273. 
last  carrier  bound  to  deliver  goods  to  holder  of,  274. 
when  goods  made  deliverable  to  consignee,  275. 
what  is  a  complete  delivery  of  the  goods,  276. 
lien  of  pledgee  covers  freight,  277. 
Pledgees  of  different  parts  of  same  bill  of  lading,  278,  279. 
property  passes  by  part  first  delivered,  278. 
carrier  may  deliver  to  consignee  on  his  producing  one  of  the  set, 
279. 
BILL   OF   PARCELS,  as  security,  constitutes  a  pledge,  15. 

receipted,  constitutes  a  pledge,  16. 
BILL   OF    SALE,  as  security,  constitutes  a  pledge,  15. 
with  agreement  for  repurchase,  a  pledge,  19,  20. 
BROKER,  carrying  stocks  upon  margin,  495-501. 

stands  in  relation  of  pledgee  to  customer,  495. 
acts  in  a  threefold  relation,  496. 

distinction  between  carrying  stocks  and  carrying  executory  con- 
tract for  grain,  497. 
different  view  of  the  contract  in  Massachusetts,  498,  499. 
cannot  recover  for  fictitious  purchase,  500. 
Authority  to  use  and  hypothecate  pledged  stock,  501-512. 
may  be  inferred  from  circumstances,  502. 
usage  to  pledge  customer's  stock,  503. 
664 


INDEX. 

Reference  is  to  Sections. 

BROKER  —  continued. 

agreement  that  he  may  hypothecate  customer's  stock,  506. 
but  bound  to  return  identical  stock,  508,  509. 
but   must   always  have   enough  on  hand  to  deliver,   510, 
511. 
rehypothecating  securities  belonging  to  several  persons,  512. 
Remedies  of  upon  purchases  of  stock  upon  margin,  722. 
custom  to  sell  at  stock  exchange  without  notice,  723. 
illegal  sale  does   not  prevent  his  recovery  of  purchase  money, 

742. 
customer  should  object  to  sale  within  reasonable  time,  744. 
BROKERS'    BOARD,  sale  at,  is  not  a  public  sale,  737,  738. 

CALIFORNIA,  statute  regulating  transfer  of  stock,  183. 

statute  relating  to  negotiability  of  bills  of  lading,  234. 
statute  relating  to  negotiability  of  warehouse  receipts,  284. 
pledgor's  interest  subject  to  garnishment,  376. 
CARE  of  thing  pledged.     See  Diligence. 
CARRIER,  cannot  pledge  goods  intrusted  to  him,  64. 
How  far  hill  of  lading  binding  upon,  245-254. 

bill  of  lading  represents  goods  to  be  in  hands  of,  245. 

not  bound  by  bill  of  lading  signed  by  agent  not  receiving  the 

goods,  246. 
statutory  enactments  on  this  subject,  247. 

master  of  vessel  not  bound  by  bill  of  lading  when  goods  not  re- 
ceived, 248. 
railroad  company  not  bound  under  like  circumstances,  249. 
custom  cannot  make  bills  of  lading  negotiable,  250. 
not  estopped  to  deny  that  he  has  received  the  goods,  251. 
exceptional  doctrine  in  New  York,  252. 
may  not  be  bound  by  bill  of  lading,  though  good  between  pledgor 

and  pledgee,  253. 
possession  obtained  by  spurious  bill  of  lading,  254. 
Pledgee's  rights  as  against,  273-277. 

liable  for  delivering  goods  to  any  one  but  holder  of  bill  of  lading, 

273. 
last  carrier  bound  to  deliver  to  holder  of  bill  of  lading;  274. 
when  justified  in  delivering  to  consignee,  275. 
what  a  complete  delivery  under  a  bill  of  lading,  276. 
freight  on  pledged  goods  covered  by  lien  of  pledgee,  277. 
may  deliver  to  consignee  holding  one  of  set  of  bills  of  lading,  279. 

565 


INDEX. 

Reference  is  to  Sections. 

CERTIFICATE.     See  Stock  and  Transfer. 
of  stock  not  a  negotiable  instrument,  461. 
usage  of  brokers  to  treat  it  as  negotiable,  462. 
some  authorities  assimilate  it  to  a  negotiable  instrument,  463. 
title  to,  not  changed  by  involuntary  transfer,  464. 
whether  negligence  to  assign  in  blank,  465. 
taken  in  good  faith  from  apparent  owner,  466,  467. 
CHOSES   IN   ACTION,  pledge  of  non-negotiable,  134-150. 
subject  in  hands  of  pledgee  to  existing  equities,  134. 
bond  fide  purchaser  for  value,  135. 
assignment  is  valid  without  notice  to  debtor,  136. 
Mortgages  may  be  assigned  in  pledge,  137-144. 
absolute  assignment  as  security  is  a  pledge,  140. 
may  be  shown  by  parol  to  be  a  pledge,  141. 
may  be  pledged  without  formal  assignment,  142. 
note  may  be  pledged  without  mortgage,  143. 
Insurance  policies  may  be  pledged,  145-147. 
without  written  assignment,  145,  147. 

life  policy  payable  to  married  woman  may  be  pledged  by  her,  146. 
Savings  bank  books  may  be  pledged,  148. 

without  written  assignment,  148. 
Judgment  may  be  pledged,  149. 
Pledge  of  land  certificates,  150. 

other  than  stocks  and  bonds  should  be  collected  and  not  sold, 
661. 
CIVIL   LAW,  doctrine  regarding  delivery  of  pledge,  23. 

exception  as  to  redelivery  to  pledgor  for  special  purpose,  46. 
COLLATERAL   SECURITY,  defined,  1. 

when  assignment  of  security  to  a  creditor  presumed  to  be,  17. 
COLORADO,  statute  regulating  transfer  of  stock,  184. 
pledgor's  interest  made  subject  to  execution,  377. 
pledgee  of  stock  not  personally  liable  as  stockholder,  446.  , 

COMMON   CARRIER.     See  Carrier. 

COMPROMISE.     Pledgee  cannot  make  upon  collateral  paper,  716. 
CONDITIONAL   PAYMENT,  negotiable  paper  taken  as,  115,  116, 

132. 
CONDITIONAL    SALE,  distinguished  from  pledge,  20,  154. 

sale  of  stock  with  agreement  to  repurchase,  154,  156. 
CONNECTICUT,  statute  regulating  transfer  of  stock,  185. 
statute  giving  corporation  lien  upon  its  stock,  222. 
statute  relating  to  negotiability  of  warehouse  receipts,  285. 
566 


INDEX. 

Reference  is  to  Sections. 

CONSIDERATION,  illegality  of,  does  not  affect  pledgee  of  negotiable 
paper,  99. 
future  advances  sufficient  to  support  pledge,  106. 
Preexisting  debt,  whether  sufficient  to  support  a  pledge,  107—133. 
early  decisions  in  this  country,  107. 
held  sufficient  by  the  United  States  Courts,  108,  109. 
is  a  valuable  consideration,  110,  469. 
held  sufficient  in  certain  states.  111. 
ground  of  the  doctrine,  112. 
forbearance  on  the  part  of  creditor,  113. 
taking  security  for  preexisting  debt  is  in  usual  course  of  business, 

114. 
distinction  between  taking  note  in  payment  and  in  security,  115. 

this  distinction  is  shadowy,  116. 
doctrine  that  preexisting  debt  is  not  good  consideration,  117. 
this  doctrine  rests  upon  two  objections,  118. 
the  old  debt  a  sufficient  consideration,  119. 
policy  and  prospects  of  this  doctrine,  120. 
uniformity  of  rule  important,  121. 
exception  as  to  accommodation  paper,  122. 

does  not  matter  that  pledgee  has  notice  that  paper  is  accommoda- 
tion, 123. 
accommodation  paper  pledged  for  preexisting  debt,  124. 
equities  arising  subsequently  to  indorsement,  125. 
equities  arising  from  independent  transactions,  126. 
creditor  parting  with  value  at  time  of  pledge,  127. 
effect  of  a  change  in  legal  rights  of  the  parties,  128. 
agreement  for  further  time,  129,  130. 
usurious  agreement  for  extension,  131. 
paper  taken  as  conditional  payment,  132. 
transaction  governed  by  law  of  place  of  contract,  133. 
sufficient  for  pledge  of  bill  of  lading,  232. 
Debt  secured  must  he  founded  on,  354. 
CONSIGNEE.     See  Bill  of  Lading. 
CONSIGNOR.     See  Bill  of  Lading. 

CONSTRUCTION  of  pledge  when  in  writing,  for  the  court,  21. 
CONVERSION  by  pledgor  of  property  returned  to  him  for  special  pur- 
pose, 45. 

of  pledge,  pledgee's  action  for,  429. 
pledgee  may  recover  of  pledgor  for,  430. 
measure  of  damages  in  action  by  pledgee  against  pledgor,  432. 

567 


INDEX. 

Reference  is  to  Sections. 

CONVERSION  —  continued. 

measure  of  damages  in  action  against  third  person,  433. 
of  pledged  stock  by  pledgee's  hypothecating,  507. 
trover  for  conversion  is  usual  remedy  for  redeeming  pledges,  561. 
trover  for  bank  bills  pledged,  562. 
wrongful  sale  of  pledge  by  pledgee  amounts  to,  563. 
principal  liable  for  conversion  by  agent,  565. 
occurs  ujion  creditor's  refusal  of  a  proper  tender,  566. 
but  not  when  third  party  claims  the  pledge,  567. 
pledgee  may  show  in  defence  that  property  belonged  to  a  third 
person,  568. 

the  burden  of  proof  is  then  upon  him,  569. 
tender  generally  necessary  before  suit,  570. 
unauthorized  sale  of  pledge  not  itself  a  conversion,  571. 
no  formal   tender  necessary  if  there  be  a  substantial  offer  to  re- 
deem, 572. 
may  be  waived  by  debtor,  573. 
measure  of  damages  for,  574. 

in  case  of  negotiable  paper,  575. 
mitigation  of  damages  may  be  shown,  576. 
pledgee  may  offset  the  debt  secured,  577. 
counter-claim  for  other  debt  cannot  be  set  up,  578. 
in  case  of  rehypothecation,  579. 

if  pledgee  has  converted  pledge  into  money  he  may  be  sued  for 
money  had  and  received,  580. 
Of  stocks  hj  illegal  sale,  damages  for,  750-757. 
value  at  time  of  sale  is  general  rule,  750. 
time  of,  may  be  fixed  by  demand  for  the  stock,  751. 
highest  market  value  up  to  time  of  trial,  755. 

this  rule  applies  only  in  exceptional  cases,  756. 
the  true  rule  of  damages,  757. 
CORPORATION,  may  pledge  any  personal  property,  70. 
when  may  pledge  unissued  stock,  71. 

to  its  own  directors,  72. 
may  pledge  its  mortgage  bonds,  73. 
railroad  may  pledge  its  bonds,  74. 
may  take  a  pledge  of  any  property,  75. 
prohibited  from  taking  stock  of  another  corporation,  76. 
national  bank  may  take  a  pledge  of  chattels,  77. 
cannot  lend  its  credit,  77. 
568 


INDEX. 

Reference  is  to  Sections. 

CORPORATION  —  continued. 

may  take  a  jjledge  of  stock  of  corporations  whose  property 

is  real  estate,  78. 
canuot  take  its  own  stock  in  pledge,  79. 
See  Stocks. 
COUPONS,  for  interest,  pledgee  should  collect  as  they  fall  due,  668. 
CRIMINAL  OFFENCE,  assigning  collateral  before  maturity  of  debt* 

98. 
CUSTOM.     See  Usage. 

DAKOTA   TERRITORY,  statute  regulating  transfer  of  stock,  186. 

pledgee  of  stock  not  personally  liable  as  stockholder,  447. 
DAMAGES,  for  refusal  of  corporation  to  transfer  stock,  226. 
measure  of,  for  pledgee's  loss  of  collaterals,  417. 

in  action  by  pledgee  against  pledgor  for  conversion,  432. 
in  action  by  pledgee  against  third  person  for  conversion,  433. 
for  pledgee's  conversion  of  pledge  is  its  value  at  that  time,  574. 

of  negotiable  paper  is  its  face  value,  575. 
mitigation  of,  when  proceeds  of  pledge  have  been  applied  to  debt, 

576. 
pledgee  may  offset  amount  of  debt  secured,  577.  • 

cannot  set  up  other  debt  as  a  counter-claim,  578. 
in  case  of  rehypothecatiou,  579. 
Pleasure  of  for  illegal  sale  of  stocks,  750-757. 
general  rule  is  value  at  time  of  rule,  750. 
exception  to  the  rule,  753,  754. 
highest  market  value  up  to  time  of  trial,  755. 

this  rule  applicable  only  in  special  cases,  756. 
the  true  rule,  757. 
DEBT  secured  must  be  founded  on  good  consideration,  354. 
is  determined  by  contract  of  the  parties,  355. 
mere  existence  of  another  debt  from  pledgor  to  pledgee,  356. 
general  lieu  for  balance  of  account,  357. 

security  for  specific  loan  may  be  made  to  cover  other  loans,  358. 
a  pledge  may  be  a  continuing  security,  359. 
banker  may  have  a  lien  for  a  general  balance,  360. 
to  arise  in  the  future  may  be  secured,  361. 
whole  transaction  to  be  looked  at  to  determine,  362. 
interest  as  well  as  principal  secured,  363. 
Sttit  upon  (he  debt,  589-598. 
demand  of  payment  may  be  necessary  to  create  default,  608. 

569 


INDEX. 

Reference  is  to  Sections. 

DEBT  —  continued. 

payable  at  future  day  cei-tain,  does  not  dispense  with  notice  of 
sale,  609. 
Enforcing  collateral  'pa'per^  651—663. 
Enforcing  'principal  debt,  681-686. 
DEFICIENCY,  suit  for  after  applying  proceeds  of  pledges,  597. 

payment  of,  is  an  acquiescence  in  sale  of  pledge,  747. 
DELIVERY.     See  Possession. 
Essential  to  a  pledge,  23-39. 
what  constitutes,  23. 

distinguishes  a  pledge  from  a  mortgage,  24. 
in  case  the  goods  are  already  in  hands  of  pledgee,  25. 
in  case  of  a  pledge  of  a  part  of  a  quantity  of  goods,  26. 
agreement  of  parties  not  equivalent  to,  27,  28. 
cannot  be  dispensed  with  by  agreement,  29. 
symbolical,  sufficient,  36. 
of  document  of  title,  37. 
to  carrier  effectual,  37. 

subsequent,  prevails  between  the  parties,  38. 
back  to  pledgor  terminates  the  pledge,  40. 
unless  for  a  temporary  purpose,  40. 
Of  negotiable  paper  in  pledge,  80-88. 
is  essential  to  a  valid  pledge,  80. 
statutory  provisions  concerning,  81. 
parol  evidence  that  transfer  is  in  pledge,  82. 
need  not  always  be  actual,  83. 
subsequent  to  the  pledge,  84. 
actual  possession  by  pledgee  essential,  85. 
redelivery  to  pledgor  for  collection,  86. 

destroys  pledgee's  title  as  against  third  persons,  87. 
for  temporary  purpose,  88. 
of  paper  not  requiring  indorsement  makes  pledge  eflfectual,  90, 

91. 
without  indorsement  makes  an  equitable  pledge,  92,  93. 
By  delivery  of  bill  of  lading,  227-232,  261-265. 

a  symbolical  delivery  of  the  property  represented,  229,  230. 
By  delivery  of  warehouse  receipt,  280,  298. 
not  indorsed  and  not  to  bearer,  effectual,  299. 
otherwise  in  Massachusetts,  300. 

to  bearer  may  be  transferred  without  indorsement,  301. 
by  order  upon  warehouseman  accepted,  307. 
570 


INDEX. 

Reference  is  to  Sections. 

DILIGENCE  in  care  of  thing  pledged,  403-417. 
what  is  required,  403. 

pledgee's  obligation  may  be  modified  by  agreement,  406-408. 
in  case  of  loss  by  theft,  409. 
ordinary  care  only  required,  410. 

what  is  ordinary  care  depends  upon  circumstances,  411. 
ordinary,  a  relative  term,  412. 
on  part  of  pledgee,  presumed,  413. 
national  bank  liable  for  want  of,  414,  415. 
measure  of  damages  for  want  of,  417. 
In  collecting  collateral  paper,  692-719. 
pledgee  bound  to  use,  692. 
in  fixing  liability  of  indorsers,  693. 

delay  of  three  days  in  presenting,  694. 

pledgor  not  entitled  to  strict  notice  of  dishonor,  695. 

collateral  should  be  in  hand  in  making  demand,  696. 

insolvency  of  maker  does  not  dispense  with  demand,  699. 
what  constitutes  negligence  in  collecting,  700. 
whether  creditor's  negligence  makes  him  conclusively  liable,  701. 
actual  loss  to  pledgor  the  criterion  of  liability,  702. 
when  collection  could  be  made  only  by  extraordinary  diligence, 

703. 
pledgor  desiring  prompt  collection  should  demand  it,  704. 
burden  upon  debtor  to  show  negligence,  705. 
delay  for  three  months  to  bring  suit,  706. 
delay  with  debtor's  consent,  707. 
bad  faith  or  faulty  discretion  on  part  of  pledgee,  708. 
negligence  in  25ermitting  judgment  lien  to  expire,  710. 
surety  has  right  to  demand  diligence,  711. 
negligence  in  collecting  mortgage  or  other  claim,  713. 
diligence  in  collecting  interest  on  mortgage,  714. 
DISTRICT   OF    COLUMBIA,  statute   regulating  transfer  of  stock, 

187. 
DIVIDENDS  upon  pledged  stock,  pledgee  may  collect,  398. 

EQUITIES   arising   between   parties  to  negotiable  paper  after  it  is 
pledged,  125. 

from  independent  transactions,  126. 
in  favor  of  maker  of  collateral  paper,  effect  of  upon  pledgee,  673- 
676. 

571 


INDEX. 

Reference  is  to  Sections.  ; :;:i 

'EQ]]1TY ,  proceedings  to  foreclose  pledge,  640-648. 
the  earliest  remedy  upon  a  pledge,  640. 
jurisdiction  in,  when  an  account  must  be  stated,  641. 
to  foreclose  pledge  of  shares  of  land  association,  642. 
to  foreclose  pledge  of  title  deed,  643. 
factor  may  enforce  his  lien  in,  644. 
jurisdiction  in,  not  excluded  by  a  power  of  sale,  645. 
there  can  be  no  decree  of  strict  foreclosure,  647. 
court  may  authorize  pledgee  to  bid,  648. 
sale  of  collateral  paper  under  decree  in,  655. 
ESTOPPEL  of  owner  of  goods  as  against  pledgee,  308. 
two  things  must  concur  to  create,  309. 

arises  against  warehouseman  by  his  false  representation,  310. 
of  warehouseman  to  deny  he  has  the  goods  mentioned,  311. 

not  estopped  to  deny  matters  not  within  his  knowledge,  312. 
not  estopped  to  dispute  receipt  issued  by  mistake,  313. 
of  factor  from  taking  advantage  of  his  wrongful  pledge,  330. 
EXECUTION.     See  Attachment. 

sale  of  stock  upon,  against  registered  owner,  178. 
pledgor's  interest  not  subject  to,  at  common  law,  372. 
statutory  provisions  of  several  states  as  to  levy  upon  pledgor's  in- 
terest, 375-392. 
EXECUTOR   OR  ADMINISTRATOR,  may  pledge  personal  prop- 
erty of  the  estate,  61. 
distinction  between  pledges  by  executors  and  pledges  by  trustees, 

481. 
title  is  absolute  for  purposes  of  administration,  482. 
foreign  can  make  valid  transfer  of  stock,  482. 
one  of  several  may  pledge,  483. 

misapplying  securities  with  knowledge  of  pledgee,  485,  486,  488. 
pledging  stock  issued  to  him  as  executor,  487. 
pledgee  not  bound  to  see  application  of  proceeds  of  his  loan,  489. 
in  Georgia,  sales  by  must  be  public,  492. 
pledgee  need  not  present  his  claim  to,  596. 
EXPENSE  of  keeping  and  caring  for  thing  pledged,  395,  400. 

of  collecting  collateral  paper,  680. 
EXTENSION  of  time  of  payment,  a  consideration  for  collateral,  129. 
not  effected  merely  by  taking  collateral,  130. 
usurious  agreement  for,  131. 
of  payment  suspends  right  of  pledgee  to  sell,  615. 
pledgee  extending  collateral  paper  makes  it  his  own,  719. 
572 


INDEX. 
Reference  is  to  Sections. 

FACTOR,  pledges  hy,  at  common  law,  327-332. 

no  power  at  common  law  to  pledge,  327. 

power  to  sell  gives  no  power  to  pledge,  328. 

though  not  known  as  such,  329,  342. 

estopped  from  taking  advantage  of  his  wrongful  pledge,  330. 

may  pledge  property  to  extent  of  his  lien,  331. 

pledge  by,  not  distinguished  from  pledge  by  pledgee,  332. 
Factors'  acts,  their  application  and  effect,  333-353. 

purpose  of,  333. 

statutes  of  several  states,  334-340. 

common  law  prevails  except  as  changed,  341. 

may  pledge  instruments  negotiable  by  statute,  343. 

factors'  acts  apply  only  where  agent  has  power  to  sell,  344. 
apply  only  to  agents  whose  business  ends  in  a  sale,  345. 

his  general  employment  does  not  authorize  him  to  pledge,  346. 

after  authority  to  sell  has  been  revoked,  347. 

acts  apply  only  where  relation  of  principal  and  factor  exists,  348. 
relation  not  created  by  mere  possession  of  bill  of  lading,  349. 

pledgee  having  knowledge  that  he  is  acting  contrary  to  instruc- 
tions, 350. 

bound  to  follow  principal's  instructions,  351. 

may  make  successive  pledges  of  same  property,  352. 

provision  of  acts  that  consignor  shall  be  deemed  true  owner,  353. 

may  enforce  his  lien  in  equity,  644. 
FLORIDA,  statute  regulating  transfer  of  stock,  188. 
FORECLOSURE.     See  Equity. 

form  of  transaction  important,  8. 
FUTURE  ADVANCES,  pledge  to  secure,  106,  361. 
FUTURE  PROPERTY,  cannot  be  pledged,  30. 

when  subsequently  acquired,  pledgor  estopped,  31. 

increase  of  property  covered  by  pledge  of  that,  32. 

GARNISHMENT,  pledgor's  interest  not  generally  subject  to,  373. 
but  may  be  so  reached  in  Alabama,  375. 
California,  376. 
and  Colorado,  377. 
GEORGIA,  pledgor's  interest  subject  to  execution,  378. 
GRAIN,  in  bulk,  warehouse  receipt  for  part  of  whole,  318,  319. 
GUARANTOR  of  title,  warehouseman  does  not  become  by  issuing  re- 
ceipt, 320. 

573 


INDEX. 

Reference  is  to  Sections. 

IDAHO   TERRITORY,  statute  regulating  transfer  of  stock,  189. 
ILLINOIS,  doctrine  as  to  transfer  of  shares  of  stock,  190. 

statute  relating  to  negotiability  of  warehouse  receipt,  286. 
INCREASE  of  property  covered  by  pledge,  32. 
INDIANA,  statute  relating  to  negotiability  of  warehouse  receipts,  287. 

pledgor's  interest  made  subject  to  execution,  379. 

pledgor  may  vote  upon  pledged  stock,  441. 

pledgee  of  stock  not  personally  liable  as  stockholder,  448. 
INFANT.     See  Minor. 
INSURANCE  policy,  mortgage  of,  9. 

for  benefit  of  married  woman,  may  be  pledged  by  her,  68,  146. 

may  be  pledged  by  delivery  without  assignment,  145,  147. 
INTEREST  on  interest-bearing  debt,  secured  by  pledge,  363. 

pledgee  must  account  for  when  collected,  397. 

pledgee  may  collect  interest  coupons,  399,  721. 

what  rate  may  be  charged  by  pawnbrokers,  616. 

default  in,  authorizes  foreclosure,  646. 

pledgee  must  use  diligence  in  collecting,  on  collateral,  714. 
IOWA,  statute  regulating  transfer  of  stock,  191. 

statute  relating  to  negotiability  of  warehouse  receipts,  288. 

JOINT   OWNER  can  pledge  only  his  interest,  Q5. 
JUDGMENT  may  be  assigned  in  pledge,  149. 

recovery  upon  the  debt  does  not  affect   pledgee's   right  to  the 
pledge,  591. 

upon  collateral  does  not  satisfy  principal  debt,  684. 

KANSAS,  statute  regulating  transfer  of  stock,  192. 

statute  relating  to  negotiability  of  warehouse  receipts,  289. 
KENTUCKY,  statute  relating  to  negotiability  of  warehouse  receipts, 
290. 

warehouseman  authorized  to  give  receipts  for  his  own  goods,  323. 

LAND   CERTIFICATE  cannot  be  pledged,  150. 

LAW  OF  PLACE  of  contract  governs,  133. 

LEASE,  assigned  as  security,  19. 

LEGAL   TITLE,  passes  by  mortgage,  not  by  pledge,  3,  4. 

not  inconsistent  with  existence  of  pledge,  153. 
LIEN  distinguished  from  a  pledge,  1. 

Upon  stock  in  favor  of  the  corporation,  221. 

corporation  may  have  upon  shares  of  stockholder,  221. 

must  be  expressly  created,  cannot  be  implied,  221. 
574 


INDEX. 
Reference  is  to  Sections. 

LIEN  —  continued. 

not  waived  by  taking  collateral  security,  221. 

given  by  statute  in  Connecticut,  222. 

cannot  be  claimed  after  notice  that  stock  has  been  pledged,  223. 

national  banks  cannot  claim,  224. 

corporation  may  waive,  225. 

general,  for  balance  of  account,  not  secured  by  pledge,  357. 

a  banker  may  have,  860. 
LIMITATIONS,  STATUTE  OF,  bar  of  debt  does  not  make  pledge 
the  property  of  the  pledgee,  581. 

when  right  to  redeem  is  barred,  581. 

bar  of  debt  does  not  enable  the  pledgor  to  recover  the  pledge, 
582. 

when  statute  commences  to  run,  583. 
LOSS  of  thing  pledged  without  fault  of  pledgee,  405. 

pledgee  may  make  himself  liable  by  agreement,  408. 

by  theft,  rule  same  as  in  other  cases,  409. 
LOUISIANA,  pledge  must  be  by  written  act,  5. 

statute  regulating  transfer  of  stock,  193. 

factors'  acts,  334. 

pledgor's  interest  made  subject  to  attachment  and  execution,  380. 

MAINE,  statute  regulating  transfer  of  stock,  194. 

statute  relating  to  transfer  of  warehouse  receipts,  291. 

pledgor's  interest  made  subject  to  attachment,  381. 

pledgor  may  vote  upon  pledged  stock,  441. 
MARGIN.     See  Broker  and  Stocks. 

Rights  of  broher  carrying  stocks  tcpon,  495-500. 

relation  of  pledgor  and  pledgee  is  created,  495. 

broker  acts  in  threefold  relation,  496. 

distinction  between  carrying  stocks  and  carrying  executory  con- 
tract for  grain,  497. 

exceptional  view  of  the  contract  in  Massachusetts,  498,  499. 

broker  cannot  recover  for  fictitious  purchase,  500. 
MARRIED  WOMEN  may  pledge  their  personal  property,  OG. 

entitled  to  have  pledge  of  property  for  her  husband  redeemed  out 
of  his  estate,  67. 

may  pledge  a  policy  of  insurance  upon  life  of  husband,  68. 
MARYLAND,  statute  regulating  transfer  of  stock,  195. 

statute  relating  to  negotiability  of  bills  of  lading,  235. 

statute  making  bill  of  lading  conclusive  upon  carrier,  247. 

575 


INDEX. 
Reference  is  to  Sections* 

MARYLAND  —  continued. 

statute  relating  to  negotiability  of  warehouse  receipts,  293. 

factors'  acts,  335. 

pledgor  may  vote  upon  pledged  stock,  441. 

pledgee  of  stock  not  personally  liable  as  stockholder,  449. 
MASSACHUSETTS,  statute  and  decisions  relating  to  transfer  of  stock, 
196. 

statute  relating  to  transfer  of  warehouse  receipts,  292. 

factors'  act,  336. 

pledgor's  interest  made  subject  to  attachment,  382. 

pledgee  of  stock  not  personally  liable  as  stockholder,  450. 
MICHIGAN,  statute  regulating  transfer  of  stock,  197. 

pledgor's  interest  made  subject  to  execution,  383. 
MINNESOTA,  statute  regulating  transfer  of  stock,  198. 

statute  relating  to  negotiability  of  bills  of  lading,  236. 

pledgor's  interest  made  subject  to  execution,  384. 
MINOR  may  revoke  waiver  of  notice  of  sale,  733. 
MISSISSIPPI,  statute  regulating  transfer  of  stock,  199. 
MISSOURI,  statute  regulating  transfer  of  stock,  200. 

statute  relating  to  negotiability  of  bills  of  lading,  237. 

pledgor  may  vote  upon  pledged  stock,  441. 

pledgee  of  stock  not  personally  liable  as  stockholder,  457. 
MONTANA   TERRITORY,  statute  regulating  transfer  of  stock,  201. 
MORTGAGE,  distinguished  from  a  pledge,  2,  3,  4,  5. 

is  a  conveyance  of  the  legal  title,  3,  4,  9. 

distinguished  by  the  form  of  the  transaction,  8. 

mere  fact  that  title  is  conveyed,  not  enough,  9. 

of  a  policy  of  insurance,  9,  136. 

effect  of  the  use  of  the  term,  12. 

effect  of  taking  possession  of  property  under  a  void,  12. 

may  be  made  of  property  not  in  existence,  12. 

transaction  construed  according  to  circumstances,  13. 

transaction  when  in  doubt  construed  a  pledge,  14. 

constituted  by  bill  of  sale  as  security,  15. 

constituted  by  bill  of  sale  conditional  in  form,  18. 

may  be  made  of  a  chose  in  action,  138. 
Pledge  of,  137-144. 

must  be  legally  transferred  or  delivered,  139. 

absolute  assignment  as  security,  a  pledge,  140. 

fact  of  pledge  need  not  appear  on  face  of  assignment,  141. 

without  written  assignment,  142. 
676 


INDEX. 

Reference  is  to  Sections. 

MORTGAGE  —  continued. 

note  without  the  mortgage  may  be  pledged,  143 

debtor  may  pledge  his  own  note  and  mortgage,  14* 

held  as  collateral  cannot  be  sold  but  must  be  collected,  Go* 

mortgagee  of  mortgage  may  sell  it,  658. 

may  be  foreclosed  by  pledgee  upon  default,  659. 

pledgee's  interest  by  foreclosure  becomes  a  mortgagee's  intere 

660. 
diligence  in  collecting  required,  713. 
also  in  collecting  interest  on,  714. 

NATIONAL  BANK,  may  take  a  pledge  of  chattels,  77. 

cannot  loan  its  credit,  77. 

may  take  in  pledge  stock  of  corporations  whose  property  is  real 
estate,  78. 

cannot  loan  on  pledge  of  its  own  stock,  79. 

cannot  claim  lien  upon  shares  of  stockholder,  224. 

liable  as  ordinary  pledgee  for  care  of  collaterals,  414. 

liable  for  conversion  by  its  own  officers,  415. 
NEBRASKA,  certain  warehousemen  authorized   to  give  receipts  for 

their  own  goods,  322. 
NEGLIGENCE.     See  Diligence. 

gross  on  part  of  pledgee  in  taking  negotiable  paper  in  pledge 
does  not  defeat  his  title,  104. 

of  owner  of  stock  in  executing  transfer  in  blank,  465. 
NEGOTIABLE  INSTRUMENTS,  how  far  bills  of  lading  are,  233. 

statutory  provisions  respecting  bills  of  lading,  234-240. 

statute  does  not  give  all  qualities  of  bills  and  notes,  241,  242. 

indorsement  passes  only  shipper's  title,  243,  244. 

custom  cannot  make  bills  of  lading  negotiable,  250. 
Warehouse  receipts  are  not,  280,  281. 

except  when  made  so  by  statute,  282,  283. 

statutory  provisions  in  several  states,  284-295. 

stand  in  lieu  of  the  property,  296. 

whether  evidence  of  ownership  or  of  a  pledge,  297. 

factor  may  pledge  instruments  made  negotiable  by  statute,  343. 
Certificate  of  stock  is  not,  461-468. 

usage  of  brokers  so  to  treat  them  not  admissible,  462. 

some  authorities  assimilate  to  negotial)le  instruments,  463. 

title  not  changed  l)y  involuntary  transfer,  464. 

confers  indicia  of  property,  466. 

37  577 


INDEX. 

'  Reference  is  to  Sections. 

NEGOTIABLE   PAPER,  delivery  and  possession  essential  to  a  valid 
pledge  of,  80. 
statutory  provisions  regarding  pledges  of,  81. 
parol  evidence  that  transfer  of  is  in  pledge,  82. 
delivery  of,  need  not  always  be  actual,  83. 
subsequent  delivery  of,  84. 

actual  possession  requisite  to  establish  title  of  holder,  85. 
redelivery  of  to  pledgor  for  collection,  86. 

destroys  pledgee's  title  as  against  third  person,  87. 

when  pledgor  estopped  to  say  that  pledgee  has  lost  his  title, 
88. 
Bona  fide  holder  for  value,  89-106. 

pledgee  in  good  faith  is  practically  the  owner,  89. 

pledge  of  etfectual,  though  title  of  pledgor  defective,  90. 

possession  sufficient  to  enable  holder  to  pledge  it,  91. 

note  payable  to  order  may  be  pledged  by  delivery  merely,  92. 

but  then  the  payee  retains  the  legal  ownership,  93. 
pledgee  can  give  good  title,  94. 
transfer  of  collateral  alone  is  pro  ta7ito  payment,  95. 
agent  can  effectually  pledge  for  his  own  debt,  96. 
misapplication  of,  by  debtor's  agent,  97. 

effect  of  statute  making  assignment  of  collateral  a  criminal  of- 
fence, 98. 
illegal  consideration,  effect  of  upon  pledgee,  99. 
notice  of  equities  by  pledgee  of,  100. 
effect  of  failure  to  indorse  instalments  of  interest,  101. 
note  which  states  that  it  is  given  as  collateral,  102. 
recital  that  note  is  secured  by  collateral,  103. 
gross  negligence  on  part  of  pledgee  does  not  defeat  his  title,  104. 
knowledge  of  pledgee  of  pledgor's  want  of  authority,  105. 
pledged  for  future  advances,  106. 
Collateral  for  preexisting  debt,  107-133. 
conflict  of  authority  on  the  subject,  107. 
rule  of  the  United  States  Courts,  108,  109,  110. 
the  rule  having  the  better  reasons  and  authority,  111. 
grounds  of  the  rule,  112. 

forbearance  by  creditor  also  a  good  consideration,  113. 
taking  for  preexisting  debt  is  in  usual  course  of  business,  114. 
distinction  between  taking  in  payment  and  as  security  for  preex- 
isting debt,  115. 

this  distinction  is  shadowy,  116. 
678 


INDEX. 

Reference  is  to  Sections. 

NEGOTIABLE  PAPER  —  continued. 

doctrine  that  pledgee  for  preexisting  debt  is  not  holder  for  value, 
117. 

this  rests  upon  two  objections,  118. 
want  of  any  new  consideration,  118. 
not  taken  in  usual  course  of  business,  118,  119. 
does  not  prevail  in  England,  120. 
uniformity  of  rule  upon  this  subject  important,  121. 
exception  as  to  accommodation  paper,  122. 
does  not  matter  that  pledgee  knows  paper  is  accommodation, 

123. 
accommodation  paper  may  be  pledged  for  antecedent  debt,  124. 
equities  arising  between  parties  subsequently  to  indorsement,  125. 
equities  arising  from  independent  transactions,  126. 
creditor  parting  with  value  at  time  collateral  is  taken,  127. 
change  in  the  legal  rights  of  the  parties,  128. 
agreement  for  further  time,  129. 
right  of  action  upon  the  debt  not  suspended,  130. 
usurious  agreement  for  extension,  131. 
taken  as  conditional  payment  of  preexisting  debt,  132. 
place  of  contract  governs  the  law,  133. 
Remedies  upon  pledges  of,  651-719. 

collateral  cannot  be  enforced  by  sale,  651. 

except  by  special  power,  651,  652,  653. 
some  authorities  hold  that  such  paper  may  be  sold,  654. 
in  California  may  be  sold  under  decree  in  equity,  655. 
in  Texas,  after  death  of  pledgor,  aid  of  Probate  Court  not  re- 
quired, 6dQ. 
ordinary  note  and  mortgage  cannot  be  sold,  657. 
but  mortgagee  may  sell  note  and  mortgage  on  default,  658. 
creditor  may  pursue  his  remedies  simultaneously  or  successively, 
663. 
Suit  upon  collateral  paper,  664-680. 

no  demand  upon  pledgor  necessary  before,  664. 
pledgee  may  enforce  upon  maturity,  665. 

understanding  that  collateral  is  not  first  to  be  resorted  to,  fi^Q. 
pledgee  not  bound  to  collect  upon  maturity,  667. 
pledgee  may  demand  payment  of  coupons  as  they  mature,  668. 
pledgee  may  collect  collateral  note  in  his  own  name,  when,  669. 
pledgee  when  not  invested  with  legal  title  may  sue  in  name  of 
pledgor,  670. 

679 


INDEX. 
Reference  is  to  Sections. 

NE  GOTIABLE  PAPER  —  continued. 

pledgee  may  recover  upon  collateral  though  pledgor  has  been 
paid,  671. 

pledgee  may  enforce  payment  of  accommodation  paper,  673. 

pledgee  may  recover  full  amount  though  this  exceeds  the  debt 
secured,  674. 

unless  there  are  equities  in  favor  of  the  maker,  675. 

pledgee  of  accommodation  paper  can  recover  only  to  extent  of 
debt  secured,  676. 

pledgee  has  no  better  title  to  proceeds  than  he  had  to  the  paper, 
677. 

pledgee  should  credit  upon  debt  whatever  he  collects  upon  the 
collateral,  678. 

pledgee  entitled   to  counsel  fees  paid  in  suit  upon  collaterals, 
680. 
JSnforcing  principal  debt,  681-686. 

pledgee  may  enforce   principal   debt  without   surrendering  col- 
laterals, 681. 

pledgee  after  selling  collaterals  can  recover  only  balance  of  prin- 
cipal, 682. 

no  defence  that  creditor  has  irregularly  foreclosed  a  collateral 
mortgage,  683. 

judgment  upon  collateral  does  not  satisfy  principal  debt,  684. 

creditor  not  first  bound  to  apply  collateral,  685. 
even  at  request  of  surety,  686. 
Taken  in  payment.,  687-691. 

proof  of  agreement  to  accept  collaterals  in   payment  must  be 
positive,  687. 

distinction  between  note  for  antecedent  debt,  and  one  for  property 
sold,  688. 

parties  may  by  agreement  take  collateral  in  payment,  689. 

inclination  of  courts  in  this  matter,  690. 

transfer  of  note  at  time  of  purchase  of  property,  691. 
Diligence  in  collecting  collateral  paper,  692-719. 

reasonable  diligence  in  collecting  must  be  used,  692. 
and  in  charging  indorsers,  693. 

delay  of  three  days  in  presenting  for  payment,  694. 

pledgor  not  entitled  to  strict  notice  of  dishonor,  695. 

collateral  should  be  in  hand  in  making  demand,  696. 

neglect  or  omission  of  officer  of  government,  697. 

whether  deposited  as  collateral  a  question  for  jury,  698. 
680 


INDEX. 
Reference  is  to  Sections. 

NEGOTIABLE  PAPER  —  continued. 

insolvency  of  maker  does  not  dispense  with  demand  of  payment, 
699. 

what  constitutes  negligence  in  collecting  collateral,  700. 

whether  creditor's  negligence  conclusively  makes  him  liable,  701. 

actual  loss  to  pledgor  criterion  of  pledgee's  liability,  702. 

when  collateral  could  be  collected  only  by  extraordinary  diligence, 
703. 

pledgor  desiring  prompt  collection  of  collateral  should  demand  it, 
704. 

burden  of  proof  on  debtor  to  show  creditor's  negligence,  705. 

delay  to  bring  suit  upon  collateral  for  three  months,  706. 

delay  with  debtor's  consent,  707. 

bad  faith  or  faulty  discretion  on  part  of  pledgee,  708. 

when  note  taken  as  conditional  payment,  709. 

pledgee  of  judgment  liable  for  negligence,  710. 

surety  of  debt  has  right  to  exact  diligence,  711. 

creditor  entitled  to  benefit  of  surety's  collateral,  712. 

neglect  in  collecting  mortgage  or  other  claim,  713. 

diligence  in  collecting  interest  on  mortgage,  714. 

return  of  execution  unsatisfied,  715. 

pledgee  has  no  right  to  compromise  collateral,  716. 

no  right  to  surrender  collateral  without  payment,  717. 

pledgee  may  exchange  the  security,  718. 

pledgee  extending  time  of  payment  of  collateral,  719. 
NEVADA,  statute  regulating  transfer  of  stock,  203. 

pledgor  may  vote  upon  pledged  stock,  441. 
NEW  HAMPSHIRE,  statute  regulating  transfer  of  stock,  202. 

pledgor's  interest  made  subject  to  execution,  385. 

pledgor  may  vote  upon  pledged  stock,  441. 
NEW  JERSEY,  statute  regulating  transfer  of  stock,  204. 

pledgor's  interest  made  subject  to  execution,  386. 
NEW  MEXICO  TERRITORY,  statute  regulating  transfer  of  stock, 
205. 

pledgor  may  vote  upon  pledged  stock,  441. 
NEW  YORK,  decisions  respecting  transfer  of  stock,  206. 

statute  relating  to  negotiability  of  bills  of  lading,  238. 

statute  relating  to  negotiability  of  warehouse  receipts,  294. 

factors'  act,  337. 

pledgor's  interest  made  subject  to  execution,  387. 

pledgee  of  stock  not  personally  liable  as  stockholder,  452. 

581 


INDEX. 

Reference  is  to  Sections. 

NORTH  CAROLINA,  statute  regulating  transfer  of  stock,  207. 
NOTICE,  of  equities  affecting  negotiable  paper,  100,  101. 

of  want  of  authority  of  pledgor  to  pledge  negotiable  paper,  105. 
need  not  be  given  to  debtor  of  pledge  of  chose  in  action,  136. 
of  transfer  of  warehouse  receipt  acknowledged  by  warehouseman, 

302. 
of  rights  of  true  owner  of  stock,  effect  upon  pledgee,  472. 
from  fact  that  certificate  is  in  name  of  prior  pledgee,  473. 
In  case  of  pledges  of  stock  by  persons  holding  fiduciary  relations, 
474-494. 
stock  in  name  of  "trustee"  cannot  be  pledged,  474. 
stock  issued  to  "  the  estate  of  "  a  deceased  person,  475. 
pledgee  knowing  that  pledgor  is  pledging  trust  stock  for  his  own 

use,  478. 
when  trust  not  indicated  by  the  certificate,  479. 
exceptional  decisions  as  to  pledging  stock  in  name  of  "  trustee," 

480. 
knowledge  that  executor  is  misappropriating  securities,  485. 
is  perverting  stock  to  his  own  use,  486. 
is  pledging  trust  certificate  to  secure  his  own  debt,  487. 
same  facts  that  are  notice  to  individual  are  also  to  corporation, 

488. 
pledgee  not  bound  to  see  to  application  of  proceeds  of  loan,  489. 
broker  knowing  that  he  is  dealing  with  an  agent,  494. 
Of  sale  of  pledge,  602-615. 
two  kinds  of  notice  that  may  be  required,  607. 
of  time  and  place  of  sale  not  dispensed  with  because  debt  is  pay- 
able at  a  day  certain,  609. 
sale  can  only  be  made  after  reasonable  notice  of  time  and  place, 

610. 
waiver  of  may  be  made  by  agreement,  611. 
must  be  given  to  general  owner  or  his  agent,  612. 
need  not  be  formal  if  pledgor  has  actual,  613. 
defective  if  time  and  place  be  not  specified,  614. 
Of  sale  of  collateral  stocks,  720-729. 
the  general  rules  in  regard  to  demand  and  notice  apply,  726. 
sold  like  pledges  of  ordinary  chattels,  727. 
Waiver  of  by  agreeing  upon  power  of  sale,  730-740. 
agreement  for  private  sale  or  sale  without  notice,  730,  732. 
minor  may  revoke  waiver  of  notice,  733. 
when  notice  provided  for  has  become  impossible,  734. 
582 


INDEX. 

Reference  is  to  Sections. 

OHIO,  statute  regulating  transfer  of  stock,  208. 
factors'  act,  337. 
pledgor  of  stock  liable  as  stockholder,  453. 

PAROL  EVIDENCE,  admissible  to  show  that  transfer  was  in  pledge, 
82. 
to  show  what  debts  are  secured,  102. 
to  show  absolute  assignment  to  be  a  pledge,  141. 
to  show  an  absolute  transfer  of  stock  to  be  in  pledge,  155. 
not  admissible  to  contradict  written  contract,  157. 
PARTNER  may  pledge  partnership  property  for  debt  of  firm,  69. 
PAWNBROKER,  statutes  regarding  sales  of  pawn  by,  616-630. 

interest  that  may  be  charged  by,  616. 
PAYMENT  not  presumed  from  assignment  of  security  to  a  creditor,  17. 
whether  bill  of  lading  secures  payment  or  acceptance  of  draft,  255. 
Effect  of,  540-547. 

discharges  the  pledge,  540. 

but  whole  debt  must  be  paid,  540. 
renewal  of  note  secured  does  not  extinguish  debt,  541. 
creditor  has  no  power  over  collateral  after  payment,  544. 
Application  of,  548-551. 

when  pledge  covers  several  distinct  debts,  548. 
creditor  may  apply  a  general  payment,  549. 
proceeds  of  pledge  must  be  applied  to  the  debt  secured,  550. 
creditor  has  no  right  to  apply  security  to  any  other  purpose, 
551. 
not  required  of  debt  in  order  to  redeem  pledge  obtained  by  false 

representation,  564. 
return  of  the  pledge  not  a  condition  of,  593. 
demand  of  sometimes  necessary  to  create  default,  608. 
that  collaterals  are  accepted  in,  must  be  proved,  687. 
distinction  between   note  of  third  person   taken  for  antecedent 

debt,  and  taken  for  property  sold,  688. 
note  of  third  person  taken  in  payment  by  agreement,  689. 
note  of  third  person  when  presumed  to  be  in  payment,  691. 
PENNSYLVANIA,  statute  and  decisions  respecting  transfer  of  stock, 
209. 
statute  relating  to  negotiability  of  warehouse  receipts  and  bills  of 

lading,  239. 
factors'  act,  338. 

pledgor's  interest  made  subject  to  execution,  388. 

583 


INDEX. 
Reference  is  to  Sections. 

PLEDGE,  defined,  1. 

more  than  a  lien,  less  than  a  mortgage,  2,  3. 

a  contract  implied  in  law,  5. 

though  evidenced  by  writing,  need  not  be  recorded,  6. 

a  lien,  not  a  legal  title,  7. 

form  of  the  transaction  important,  8. 

constituted  by  delivery  of  property  as  security,  8. 

in  maoy  cases  legal  title  necessarily  conveyed,  9. 

assignment  of  a  contract  as  security,  9. 

by  deposit  of  property  with  a  third  person,  10. 

by  agreement  to  deliver  warehouse  receipts,  10. 

by  instrument  which  in  terms  pledges  property,  11. 

transaction  construed  according  to  circumstances,  13. 

favored  by  the  law  when  transaction  in  doubt,  14. 

constituted  by  bill  of  sale  absolute  in  terms,  15. 
bill  of  parcels,  14. 

by  bill  of  sale  and  agreement  to  repurchase,  19,  20. 

by  assignment  of  lease,  19. 

indicated  by  inadequacy  of  price,  20. 

construction  of,  when  in  writing,  for  the  court,  21. 

there  may  be  a  statutory,  22. 
Delivery  essential  to  create,  23-39. 

distinguished  from  a  mortgage  by  this  requirement,  24. 

in  case  the  property  is  already  in  hands  of  pledgee,  25. 

of  part  of  a  quantity  of  goods,  must  be  set  apart,  26. 

agreement  of  parties  not  equivalent  to  delivery,  27. 

cannot  be  made  of  future  property,  30. 
of  lost  property,  30. 

of  unfinished  goods,  33. 

delivery  to  third  person  for  pledgee,  34,  37. 

subsequent  delivery  makes  good  between  the  parties,  39. 
Possession  essential  to  continue,  40-48. 

not  affected  by  wrongful  possession  of  pledgor,  41. 

possession  of  pledgor  not  conclusive  of  fraud,  42. 

pledgee  may  employ  pledgor  to  sell,  43. 

not  invalidated  by  delivery  to  pledgor  for  special  purpose,  44-46. 

conversion  of  by  pledgor,  trover  for,  45. 
Subject  matter  of,  49-51. 

may  be  of  personal  property  of  every  kind,  49. 

of  property  exempt  from  attachment,  50. 

statutory  prohibition  of,  51. 
584 


INDEX. 

Reference  is  to  Sections. 

PLEDGE  —  continued. 

Title  of  the  pledgor,  52-65. 

pledgor  impliedly  warrants  title,  52. 

need  not  belong  to  pledgor,  53. 

possession  is  not  title,  54. 
Married  women  may  pledge  their  property,  66-68. 
By  partner  of  pai-tnership  jjroperty,  69. 
By  corporations,  70-74. 
To  corporations,  15-Td. 
Of  negotiable  paper,  80-133. 
Of  non-negotiable  choses  in  action,  134-150. 

subject  in  hands  of  pledgee  to  equities,  134. 

hond  fide  purchaser  for  value,  135. 
Of  mortgages,  137-144. 

must  be  legally  transferred  or  delivered,  139. 

fact  of  pledge  need  not  appear  on  the  assignment,  141. 

of  note  without  the  mortgage,  143. 
Of  policies  of  insurance,  145-147. 

by  delivery  without  formal  assignment,  145,  146,  147. 
Of  savings  hanh  hooks,  148. 
Of  judgments,  149. 
Of  land  certificates,  150. 
Of  corporate  stocks,  151-154. 
Of  bills  of  lading,  227-279. 
Of  warehouse  receipts,  280—326. 
PLEDGEE,  of  negotiable  paper  can  give  good  title  to  it,  94. 

of  bill  of  lading,  rights  against  consiguor,  266,  267. 
rights  against  consignee,  268-272. 
rights  against  carrier,  273-277. 
of  one  part  of  bill  of  lading,  278,  279. 

of  warehouse  receipts,  in  good  faith,  rights  of,  303-313. 
Right  to  use  and  profits  of  thing  pledged,  393-402. 

no  right  to  injure  it  by  use,  394. 

when  the  thing  is  an  expense  to  the  pledgee,  395. 

must  account  for  profits  arising  from  use  of  pledge,  396. 

liable  for  interest  on  money  loaned,  397. 

liable  for  dividends  on  pledged  stock,  398. 

may  collect  interest  coupons  of  bonds  pledged,  399. 

entitled  to  all  reasonable  expenses  for  care  of  pledge,  400. 

when  may  finish  unfinished  goods,  401. 

DO  right  to  manufacture  raw  material,  402. 

585 


INDEX. 

Reference  is  to  Sections. 

PLEDGEE  —  continued. 

Duty  to  care  for  thing  pledged,  403-417. 

bound  to  use  ordinary  diligence  in  care  of  pledge,  403. 
same  care  of  pledge  that  he  takes  of  his  own  property,  404. 
not  liable  if  property  destroyed  without  his  fault,  405. 
obligation  may  be  modified  by  express  contract,  406,  407. 
may  by  contract  make  himself  liable  for  accidental  loss,  408. 
rule  in  case  of  loss  by  theft  same  as  in  other  cases,  409. 
must  take  ordinary  care  of  colltiteral,  410. 
what  the  ordinary  care  required  is,  411. 
ordinary  diligence  is  a  relative  term,  412. 
negligence  on  part  of  pledgee  not  presumed,  413. 
national  bank  liable  as  pledgee  for  collaterals,  414. 
bank  liable  for  fraudulent  conversion  by  its  officers,  415. 
pledgee  continues  liable  after  debt  is  paid,  416. 
measure  of  damages  for  negligence,  417. 
His  right  to  assign  the  pledge,  418-428. 
assignee  stands  in  his  place,  418. 
cannot  assign  pledge  distinct  from  debt,  419. 
original  pledge  not  put  an  end  to  by  repledglng,  420. 
not  required  to  keep  pledge  in  his  exclusive  possession,  421. 
pledgor  cannot  maintain  trover  for  a  conversion  because  of  an 

assignment,  422. 
can  assign  no  greater  right  than  he  has,  423. 
of  negotiable  paper  can  give  good  title,  424. 

may  transfer  with  principal  debt,  425. 
may  release  a  portion  of  goods  pledged,  426. 
upon  death  his  right  passes  to  personal  representative,  427. 
criminal  offence  to  sell  or  repledge  collaterals,  428. 
His  right  of  action  for  a  conversion  of  pledge,  429-436. 

may  replevin  pledged  chattel  wrongfully  taken  from  him,  429. 
may  recover  pledge,  or  its  value,  of  pledgor  who  has  wrongfully 

taken,  430. 
cannot  maintain  bill  in  equity  against  one  intrusted  with  pledge, 

431. 
measure  of  damages  in  trover  against  pledgor,  432. 

against  third  person,  433. 
action  for  injury  to  pledge  by  stranger,  434. 
damages  in  action  for  conversion  of  gold  coin,  435. 
damages  against  pledgor  taking  pledge  by  replevin,  436. 
Of  stock,  rights  and  liabilities  of,  437-512. 
586 


INDEX. 
Reference  is  to  Sections. 

PLEDGEE  —  continued. 

liability  as  stockholder,  437. 

cannot  escape  liability  by  transfer  to  irresponsible  person,  438. 

when  the  stock  is  transferred  to  third  person  in  first  instance, 439. 

may  sell  it  in  pursuance  of  a  power  of  sale,  440. 

the  registered  stockholder  may  vote,  441. 

though  he  holds  in  pledge,  442. 
will  not  be  restrained  by  injunction  from  voting,  443. 
by  voting  upon  stock  does  not  convert  it  to  his  own  use,  444. 
statutes  exempting  pledgees  from  liability  as  stockholders,  445- 

456. 
of  corporation's  own  stock  entitled  to  benefit  of  such  statute, 

457-459. 
holding  stock  after  payment  of  debt  liable  as  stockholder,  460. 
His  rights  acquired  in  good  faith  from  apparent  owner,  461-473. 
certificate  of  stock  not  negotiable,  461. 

usage  of  brokers  to  treat  it  as  negotiable,  462. 
closely  assimilated  to  negotiable  instruments,  463. 
title  not  changed  by  involuntary  transfer,  464. 
whether  negligence  in  owner  to  execute  transfer  in  blank,  465. 
taking  certificate  in  good  faith  from  apparent  owner,  466. 
owner  having  conferred  upon  another  the  indicia  of  property  is 

estopped,  467. 
immaterial  whether  certificate  passes  legal  or  equitable  title,  468. 
a  precedent  debt  a  sufficient  consideration,  469. 
of  collaterals  taken  in  exchange,  470. 
under  usurious  contract  whether  a  bondjide  holder,  471. 
having  actual  notice  of  rights  of  owner,  472. 
of  stock  certificate  standing  in  name  of  prior  pledgee,  473. 
His   rights   when   deeding  with  one   holding  a  fiduciary  relation, 

474-494. 
trustee  has  no  right  to  pledge  stock,  474. 
certificate  "  to  estate  of  "  a  deceased  person,  475. 
one  of  two  trustees  cannot  pledge,  476. 

when  corporation  liable  for  jiermitting  transfer  by  trustee,  477. 
with  knowledge  that  pledgor  held  in  trust,  478. 
of  certificate  which  does  not  indicate  any  trust,  479. 
exceptional  rule  in  Maryland  and  California,  480. 
distinction  between  pledges  by  executors  and  trustees,  481. 
title  of  executor  absolute,  482. 
one  of  several  executors  may  pledge,  483. 

587 


INDEX. 

Reference  is  to  Sections. 

PLEDGEE  —  continued. 

trustee  of  insolvent  debtor  may  pledge,  484. 
knowledge  that  executor  is  misappropriating,  485. 
is  perverting  assets  to  his  own  use,  486,  487. 
the  same  facts  that  are  notice  to  an  individual  are  notice  to  a 

corporation,  488. 
not  bound  to  see  to  proper  application  of  proceeds  of  loan,  489. 
the  rule  as  to  trustees  applies  to  persons  holding  other  fiduciary 

relations,  490. 
rule  applied  to  pledge  of  bonds  by  president  of  railroad  company, 

491. 
in  Georgia,  sales  by  administrator  must  be  public,  492. 
of  stock  taken  from  one  professedly  acting  as  agent,  493. 
broker  buying  from  one  known  to  be  acting  as  agent,  494. 
notice  of  trust  from  memorandum  on  note,  494. 
His  rights  as  broker  carrying  stocks  upon  margin,  495-500. 
relation  of  pledgor  and  pledgee  created,  495. 
broker  acts  in  a  threefold  relation,  496. 
stocks  on  margin  distinguished  from  executory  contract  for  grain, 

497. 
in  Massachusetts,  contract  of  broker  with  customer  regarded  as 
executory,  498. 

this  decision  introduces  a  new  doctrine,  499. 
broker  cannot  recover  for  fictitious  purchase,  500. 
His  right  to  use  and  hypothecate  pledged  stock,  501-512. 
no  right  except  by  virtue  of  a  special  agreement,  501. 
authority  to  pledge  may  be  inferred  from  circumstances,  502. 
custom  that  broker  may  pledge  customer's  stock,  503. 
whether  stock  pledged  to  bank  is  subject  to  banker's  lien,  504. 
his  use' must  be  consistent  with  pledgor's  general  ownership,  505. 
understanding  that  broker  may  hypothecate  stocks,  506. 
using  to  secure  his  own  debt  may  be  treated  as  a  conversion, 

507. 
need  not  return  identical  stock,  508,  509. 
must  always  have  on  hand  enough  to  satisfy  all  contracts,  510, 

511. 
when  securities  belonging  to  several  persons  have  been  rehy- 
pothecated, 512. 
His  remedies  after  defaidt.     See  Remedies. 
His  remedies  upon  negotiable  paper.     See  Negotiable  Paper. 
His  remedies  upon  pledges  of  stocks.     See  Stocks. 
688 


INDEX. 

Reference  is  to  Sections. 

PLEDGOR,  impliedly  warrants  title,  52. 

cannot  set  up  against  pledgee  an  after-acquired  title,  52. 
may  pledge  property  of  another  with  consent,  53. 
possession  alone  does  not  enable  him  to  make  a  valid  pledge,  54. 
in  possession  of  stolen  property  cannot  pledge  it,  55. 
may  effectually  pledge  property  obtained  by  fraud,  56. 
without  title  can  confer  no  title,  56. 
may  confer  good  title  to  negotiable  instruments,  57. 
need  not  be  sole  and  absolute  owner,  58. 
having  life  interest  may  pledge  that,  59. 
having  a  limited  interest  can  only  pledge  that,  60, 
administrator  may  pledge  personal  property  of  the  estate,  61. 
vendor  in  possession  may  pledge,  62. 
vendee  in  possession  may  pledge,  63. 
carrier  cannot  pledge  goods  intrusted  to  him,  64. 
one  joint  owner  in  possession  may  pledge  his  interest,  65. 
nights  and  liabilities  of  before  default,  364-392. 
may  assign  his  interest  subject  to  the  pledge,  364. 
his  assignee  takes  only  his  rights,  365. 
right  reserved  to  sell  the  pledge,  366. 
notice  to  purchaser  of  existing  pledge,  367. 
notice  by  assignee  of  pledge  of  the  assignment,  368. 
action  for  conversion  of  the  pledge  before  assignment,  369. 
assignee  of  pledge  entitled  to  redeem  it,  370. 
genuineness  of  collateral  not  affirmed  by  pledgee's  delivery  of  it 
to  assignee,  371. 
Liability  of  his  interest  to  attachment  and  execution,  372-392. 

not  liable  to  attachment  or  execution  at  common  law,  372. 

not  generally  liable  to  trustee  or  garnishee  process,  373. 

statutes  of  the  several  states  on  this,&ubject,  374-392. 
action  for  injury  to  pledge  by  stranger,  434. 
cannot  require  return  of  pledge  before  payment,  593. 
cannot  set  up  non-return  of  pledge  in  defence  to  suit  on  debt,  594. 

but  otherwise  under  codes  of  several  states,  595,  o^dQ. 
POSSESSION.     See  Delivery. 

may  be  held  by  third  person  for  pledgee,  34. 
may  be  held  by  workman  or  clerk  of  pledgor,  oo. 
must  be  continued  to  preserve  the  pledge,  40. 
redelivery  of  terminates  the  pledge,  40. 
obtained  wrongfully  by  pledgor,  41. 
by  pledgor,  not  conclusive  evidence  of  fraud,  42. 

580 


INDEX. 

Reference  is  to  Sections. 

POSSESSION  —  continued. 

pledgor  may  be  employed  by  pledgee  to  sell,  43. 
of  pledgor  for  a  special  or  limited  purpose,  44,  45. 

under  the  civil  law,  46. 
by  pledgor  enables  him  to  give  good  title,  47. 

not  after  property  has  been  restored  to  pledgee,  48. 
is  not  title  though  indicative  of  it,  54,  55. 
of  negotiable  paper  is  presumptive  of  title,  57. 
Of  negotiable  paper,  80-88. 
must  be  actual  to  establish  title  of  pledgee,  85. 
POWER  OF  ATTORNEY,  to  transfer  stock  executed  in  blank,  164. 

though  under  seal  may  be  in  blank,  1 65. 
POWER  OF  SALE,  is  an  authority  coupled  with  an  interest,  631. 
is  terminated  by  satisfaction  of  debt,  632. 
where  the  subject  matter  is  divisible,  633. 

where  pledgor  has  mixed  pledged  goods  with  his  own,  634,  636. 
pledgee  cannot  directly  or  indirectly  purchase,  635,  740. 
pledgee  purchasing  not  chargeable  with  conversion,  637. 
pledgor  may  treat  purchase  by  pledgee  as  valid,  638. 
pledgee  may  show  that  sale  was  for  purpose  of  valuing  the  prop- 
erty, 639. 
does  not  exclude  jurisdiction  in  equity  to  foreclose,  646. 
negotiable  paper  may  be  sold  by  virtue  of,  651-653. 
Sale  of  collateral  stocks  under,  730-740. 

competent  for  parties  to  agree  upon  manner  of  sale,  730. 
power  of  sale  may  sometimes  be  implied,  731. 
waiver  of  notice  of  sale,  732. 
PREEXISTING  DEBT.     See  Consideration. 

PROBATE  proceedings  not  necessary  in  Texas  to  enforce  pledge,  656.  • 
PROFITS,  pledgee  entitled  to  such  as  accrue  on  the  pledge,  396. 
pledgee  may  collect  dividends,  398. 
and  interest  coupons,  399. 
PURCHASER.     See  Assignment. 

in  good  faith  from  pledgee  in  possession  acquires  a  good  title,  47. 

REDELIVERY,  to  the  pledgor  terminates  the  pledge,  40. 
unless  for  a  temporary  purpose,  40. 
obtained  by  wrongful  act  of  pledgor,  41. 
possession  of  pledgor  not  conclusive  of  fraud,  42. 
pledgor  may  be  employed  by  pledgee  to  sell,  43. 
for  a  special  and  limited  purpose,  44,  45. 
590 


INDEX. 

Reference  is  to  Sections. 

REDELIVERY  —  continued. 

of  negotiable  paper  to  debtor  for  collection,  86. 
when  destroys  creditor's  special  property,  87. 
for  temporary  purpose  estops  debtor,  88. 
REDEMPTION,  of  pledge  in  equity,  552-560. 
the  right  attaches  to  every  pledge,  553. 
agreement  that  upon  default  property  shall  be  pledgee's,  554. 

if  made  subsequently  to  pledge  may  be  enforced,  555. 
remedy  at  law  is  sufficient,  556. 

bill  in  equity  will  lie  under  special  circumstances,  557. 
where  an  account  is  wanted,  557. 
to  obtain  a  retransfer  of  stock  pledged,  558. 
to  compel  return  of  note  and  mortgage  to  pledgor,  559. 
upon  death  of  pledgor  his  representatives  have  his  right,  560. 
action  to  redeem  not  the  usual  remedy,  561. 
but  trover  for  conversion,  562-580. 
when  right  of  is  barred,  581. 
REGISTRY,  not  required  of  a  pledge,  6,  39. 
REMEDIES,  of  pledgee  after  default,  589-650. 
Suit  upon  the  debt,  589-598. 

pledgee  may  pursue  all  his  remedies,  589,  663,  720. 

holding  of  collateral  does  not  suspend  his  right  of  action  on  the 

debt,  590. 
recovery  of  judgment  does  not  affect  his  right  to  enforce  the 

pledge,  591. 
debt  may  be  enforced  though  pledge  is  discharged,  592. 
return  of  pledge  not  a  condition   to  be  performed  concurrently 

with  payment,  593. 
pledgor  cannot  offset  value  of  pledge  in  suit  on  debt,  594. 
under  some  codes  may  offset  conversion  of  pledge,  595. 
and  pledgee  must  produce  or  restore  collateral,  596. 
pledgee  may  maintain  suit  for  deficiency,  597. 
pledgee  not  obliged  to  present  claim  to  administrator,  598. 
Attachment  of  pledged  property,  599-601. 

pledgee  waives  lieu  by  attaching  same  property,  599. 
even  when  it  is  in  hands  of  agent,  600. 
but  may  attach  on  another  demand,  601. 
Sale  of  pledge  at  common  law,  602-615. 

this  is  the  usual  method  of  enforcing  a  lien,  602. 
pledgee  upon  default  may  sell  pledge  at  public  auction,  603. 
pledgee  can  only  sell  the  interest  transferred  in  pledge,  604. 

5U1 


INDEX. 
Reference  is  to  Sections. 

REMEDIES  —  continued. 

assignee  of  pledgee  has  same  right  to  sell,  605. 

pledgee  not  obliged  to  sell  even  when  requested,  606,  728,  729. 

two  kinds  of  notice  which  pledgee  must  give,  607. 

when  demand  of  payment  is  necessary,  608. 

notice  of  sale  must  be  given  though  debt  payable  at  a  fixed  day, 
609. 

sale  can  only  be  made  after  reasonable  notice,  610. 

waiver  of  requirement  of  notice,  611. 

notice  must  be  given  to  owner  or  his  agent,  612. 

formal  notice  not  necessary  if  owner  has  actual  notice,  613. 

time  and  place  of  sale  must  be  given,  614. 

extension  of  time  of  payment  suspends  right  to  sell,  615. 
Statutory  provisions  regulating  sales  of  pledged  property,  616-630. 

some  exclusive,  others  permissive,  616. 

statutes  of  several  states,  617-630. 
Sales  under  powers  of  sale,  631-639. 

power  of  sale  is  coupled  with  an  interest,  631. 
is  terminated  by  satisfaction  of  debt,  632. 

where  the  subject  matter  is  divisible,  633. 

where  pledgor  has  mixed  the  pledged  chattels  with  his  own,  634. 

pledgee  cannot  directly  or  indirectly  purchase,  635,  740. 

general  partner  in  firm  which  is  pledgee  cannot  purchase,  636. 

but  pledgee  purchasing  is  not  chargeable  with  conversion,  637. 

pledgor  may  elect  to  treat  such  sale  as  valid,  638. 

pledgee  may  show  that  sale  was  for  valuation,  639. 
Sales  under  proceedings  in  equity,  640-648. 

the  earliest  form  of  foreclosing  a  pledge,  640. 

jurisdiction  in  equity  when  an  account  must  be  stated,  641. 

to  foreclose  pledge  of  shares  of  a  land  association,  642. 

in  case  of  a  pledge  of  a  title  deed,  643. 

factor  may  enforce  his  lien  by  equitable  suit,  644. 

foreclosure  upon  default  in  interest,  646. 

no  decree  of  strict  foreclosure  of  a  pledge,  647. 

court  may  authorize  pledgee  to  bid,  648. 
Surplus  proceeds  of  sale,  649,  650. 

pledgor's  right  to  surplus  absolute,  when,  649. 

pledgor  may  collect  surplus  by  suit  at  law,  650. 
Upon  pledges  of  negotiable  paper,   651-719.      See  Negotiable 
Paper. 

suit  upon  collateral  paper,  664-680. 
692 


INDEX. 

Reference  is  to  Sections. 

EEMEDIES  —  continued. 

Upon  pledges  of  stocks.     See  Stocks. 
EENEWAL,  of  note  secured  by  pledge  does  not  discharge  the  pledge, 

541. 
REPLEDGING.     See  Pledgee  and  Assignment. 
REPLEVIN,  by  pledgee  against  pledgor  for  wrongfully  taking  pledge, 

429. 
RHODE  ISLAND,  statute  and  decisions  respecting  transfers  of  stock, 

210. 
factors'  act,  339. 

SALE,  of  pledge  at  common  law,  602-615. 

pledgee  may  sell  at  public  auction,  603. 

pledgee  can  sell  only  interest  pledged,  604. 

his  assignee  has  the  same  right  to  sell,  605. 

not  obliged  to  sell  even  when  requested,  606. 

two  kinds  of  notice  to  be  given,  607. 

notice  of  time  and  place  not  dispensed  with  but  by  agreement,  609. 

can  only  be  made  after  reasonable  notice,  610. 

waiver  of  notice  by  agreement,  611,  631-640. 

notice  of,  must  be  given  to  general  owner  or  his  agent,  612. 

formal  notice  of  not  necessary  if  there  be  actual  notice,  613. 

notice  of  time  and  place  necessary,  614. 

extension  of  time  of  payment,  suspends  right  of,  615. 
Statutory  provisions  regulating  sale  of  pledge,  616-630. 

some  permissive,  others  exclusive,  616. 
Under  powers  of  sale,  631-639.     See  Power  op  Sale. 
Under  proceedings  in  equity,  640-648. 
Collateral  paper  cannot  he  enforced  by,  651. 

except  by  agreement  of  parties,  651,  652. 
under  power  of  sale,  653. 

yet  some  authorities  hold  that  collateral  paper  may  be  sold,  654. 

sale  of  collateral  paper  under  decree  in  equity,  655. 

mortgage  and  note  cannot  be  sold,  657. 

mortgagee  of  note  and  mortgage  may  sell,  658. 
Of  corporate  stocks  at  common  law,  720-729. 
Of  stocks  under  powers  of  sale,  730—740. 
Illegal  sale  of  stocks,  741-749. 

Measure  of  damages  for  illegal  sales  of  stocks,  750-757. 
SAVINGS  BANK  BOOK,  delivered  to  a  third  person  for  a  creditor,  37 

may  be  pledged  by  delivery  without  writing,  148. 

cannot  be  sold,  but  should  be  collected,  662. 

38  693 


INDEX. 

Reference  is  to  Sections. 

SOUTH  CAROLINA,  statute  regulating  transfer  of  stock,  211 
STATUTE  OF  LIMITATIONS.     See  Limitations. 
STATUTES,  regarding  delivery  of  pledge,  23. 
regarding  title  of  pledgor,  53. 
regarding  pledges  of  negotiable  paper,  81. 
regarding  assignment  of  collateral,  98. 
regulating  transfer  of  stock,  182-220. 
concerning  negotiability  of  bills  of  lading,  234-240. 
making  bills  of  lading  conclusive  against  carrier,  247. 
regarding  attachment  of  pledgor's  interest,  375-392. 
in  regard  to  voting  upon  pledged  stock,  441. 
regulating  sales  of  property  under  pledge,  616-630. 
STATUTORY  PLEDGE,  22. 
STOCK  EXCHANGE.     See  Brokers'  Board. 
STOCKHOLDER,  pledgee's  Uahilities  as,  437-460. 

pledgee  has  same  liability  as  any  stockholder,  437. 

pledgee  cannot  escape  liability  by  transfer  to  irresponsible  person 

438. 
where  stock  is  in  first  place  transferred  to  a  third  person,  439. 
pledgee  may  transfer  it  under  a  power  of  sale,  440. 
person  in  whose  name  stock  is  registered  may  vote,  441,  442. 
statutes  of  several  states  as  to  voting  upon  pledged  stock,  441. 
pledgee  will  not  always  be  enjoined  from  voting,  443. 
pledgee  does  not  convert  stock  by  voting  upon  it,  444. 
statutes  exempting  pledgee  from  personal  liability  as,  445-456. 
pledgee  of  corporations  on  stock  entitled  to  statutory  exemption 

457-459. 
pledgee  holding  stock  after  payment  of  debt  liable  as,  460. 
STOCKS,  a  proper  subject  of  pledge,  151-154. 
a  written  transfer  necessary,  151,  152. 
transfer  of  legal  title  not  inconsistent  with  a  pledge,  153. 
pledge  of,  distinguished  from  conditional  sale,  154,  156. 
Parol  evidence  to  show  transfer  to  be  in  pledge,  155-157. 

not  admissible  to  contradict  written  contract,  157. 
What  constitutes  a  transfer  at  common-law,  158-162. 
transfers  governed  by  general  principles  of  common-law,  159. 
statutes  of  doubtful  meaning  do  not  control,  160. 
convenience  of  unrestricted  transfers,  161. 
b^^-laws  not  authorized  by  statute  do  not  afiect  pledgees,  162. 
Transfers  in  blank,  163-167. 
sanctioned  by  general  commercial  usage,  163. 
decisions  of  English  courts  to  the  contrary,  164. 
694 


INDEX. 
Reference  is  to  Sections. 

STOCKS  —  continued. 

power  of  attorney  in  blank,  IGo. 

authority  to  fill  blank  not  revoked  by  death  of  pledgor,  166. 

warranty  of  genuineness  of  certificate  implied,  167. 
Transfers  by  delivery  of  certificate  as  between  the  parties,  168-171. 

title  passes  as  between  the  parties,  1G8,  169. 

by-law  requiring  transfer  upon  books  does  not  restrict  this  rio-ht 
168. 

some  courts  hold  that  entire  title  legal  and  equitable  passes,  170. 

other  courts  hold  that  only  equitable  title  jiasses,  171. 
Transfers  as  between  parties  and  corporation,  172-176. 

corporation  only  bound  by  recorded  transfer,  172,  173. 

provision  for  recording  transfer  is  for  security  of  eorporatiou,  174. 

recorded  transfer  necessary  to  confer  a  legal  right,  175. 

surrender  of  outstanding  certificate  essential,  176. 
Transfers  a^  between  parties  and  their  creditors,  177-220. 

question  whether  unrecorded  transfer  passes  legal  title,  177. 

sale  on  execution  against  registered  owner,  178. 

attachment  after  knowledge  of  prior  transfer,  179. 

statutory  regulations  in  the  several  states,  180-220. 

policy  that  should  govern  transfers  of,  220. 
Liens  in  favor  of  the  corporation,  221-226. 

must  be  expressly  created,  not  implied,  221. 

taking  of  collateral  security  no  waiver  of  lien,  221. 

statutory  provision  in  Connecticut,  222. 

no  lien  for  debt  contracted  after  knowledge  of  prior  transfer,  22. 

national  banks  cannot  claim  such  lien,  224. 

corporation  may  waive  lien,  225. 

damages  for  refusing  to  make  transfer,  226, 
Remedies  upon  pledges  of  l'2Q-lbl. 

pledgee  has  several  remedies,  720. 

may  be  sold  upon  default,  721. 

of  broker  who  is  carrying  stock  upon  margin,  722. 

custom  of  brokers  to  sell  at  stock  exchange,  723. 

bankruptcy  of  pledgor  does  not  prevent  pledgee's  selling,  724. 

pledgee  must  give  notice  and  make  public  sale,  725. 

general  rules  in  regard  to  demand  and  notice  apply,  726. 

bonds  and  stocks  sold  like  ordinary  chattels,  727. 

no  obligation  to  sell  on  default,  728. 

pledgee  not  liable  for  loss  by  neglect  to  sell,  729. 
Sale  under  powers  of  sale,  730-740. 

competent  for  parties  to  agree  upon  manner  of  sale,  730. 

5'J5 


INDEX. 

Reference  is  to  Sections. 

STOCKS  —  continued. 

power  of  sale  may  sometimes  be  implied,  731. 

waiver  of  notice  of  sale,  732. 

minor  may  revoke  waiver  of  notice,  733. 

when  notice  provided  for  has  become  impossible,  734. 

the  price  obtained  at  the  sale,  735. 

a  demand  of  payment  may  be  necessary,  736. 

sale  at  brokers'  board,  737. 

is  a  private  sale,  738. 
sale  in  separate  lots,  739. 
creditor  cannot  himself  purchase,  740. 
Illegal  sales  by  pledgee,  741-749. 

consequence  of  an  illegal  sale  is  that  pledgor  may  redeem,  741, 
wrongful  sale  does  not  prevent  creditor's  recovering  upon   the 

debt,  742. 
failure  to  impeach  sale  within  reasonable  time,  743. 
customer  should  object  to  broker's  sale  within  reasonable  time,  744. 
accepting  surplus  is  waiver  of  illegality  in  sale,  745. 
action  for  proceeds  of  sale  is  ratification  of  it,  746. 
payment  of  deficiency  after  sale  is  an  acquiescence  in  it,  747. 
trover  after  wrongful  sale  cannot  be  maintained  without  a  tender 

748. 
debtor  must  pay  or  tender  debt  before  he  is  entitled  to  a  retrans- 
fer  of  stock,  749. 
Pleasure  of  damages  for  illegal  sale  of  stock  collaterals,  750-757. 
is  value  at  time  of  conversion,  750. 
time  of  conversion  must  often  be  fixed  by  demand,  751. 
in  suit  in  equity  to  redeem  shares,  752. 
exception  to  rule  in  some  cases,  753. 
origin  of  this  exception,  754. 
highest  market  value  up  to  time  of  trial,  755. 

this  rule  applicable  only  in  special  cases,  756. 
the  true  measure  of  damages,  757. 
STOLEN  PROPERTY,  cannot  be  effectually  pledged,  55 
SUBJECT  MATTER,  of  pledges,  49-51. 

every  kind  of  personal  property  may  be  pledged,  49. 
property  exempt  from  attachment,  50, 
pledge  of  a  pension  certificate  prohibited,  51. 
Negotiable  paper,  80-133. 
Non-negotiable  chases  in  action,  134-150. 
mortgages,  137-144, 
policies  of  insurance,  145-147. 
596 


INDEX. 

Reference  is  to  Sections. 

SUBJECT  MATTER  —  continued. 
savings  bauk  books,  148. 
judgments,  149. 
land  certificates,  150. 
Corporate  stocks,  151-154. 
Bills  of  lading,  227-279. 
Warehouse  receipts,  280-326. 
SUBROGATION.     See  Surety. 
SUIT  upon  debt.     See  Remedies. 

SURETY,  right  of  subrogation  to  creditor's  securities,  513-522. 
on  paying  the  debt  is  subrogated  to  collateral,  513. 

also  to  a  lien  on  debtor's  property,  513. 
foundation  of  this  equity  is  that  the  security  is  a  trust,  514. 
discharged  by  creditor's  surrender  of  security,  515. 
discharged  by  creditor's  loss  of  security,  516. 
when  may  recover  of  creditor  value  of  released  security,  517. 
relation  of  debtor  and  surety  may  be  shown  by  parol,  518, 
not  discharged  by  creditor's  taking  security  without  extending 

payment,  519. 
released  by  false  statement  made  by  creditor  as  to  the  collateral, 

520. 
when  collateral  also  secures  other  debts,  521. 
right  of  subrogation  does  not  arise  till  payment,  522. 
Creditor's  equitable  right  to  surety's  securities,  523-533. 
security  in  surety's  hands  is  a  trust  in  favor  of  creditor,  523. 
not  material  that  creditor  did  not  know  of  the  security,  524. 
in  some  states  creditor's  equity  is  merely  a  right  to  be  subrogated, 

S25. 
distinction  between  security  given  for  payment  and  security  given 

for  indemnity,  526. 
weight  of  authority  in  flivor  of  creditor's  equitable  lien,  527. 
creditor  entitled  to  enjoin  misappropriation  of  security,  528. 

but  not  where  his  right  is  that  of  subrogation  merely,  529. 
discharge  of  surety  does  not  bar  creditor's  right,  530. 
surety  may  transfer  security  to  creditor,  531. 
one  may  hold  a  pledge  both  as  creditor  and  surety,  532. 
how  dividend  in  bankruptcy  should  be  applied,  533. 
Mutual  equities  of  co-sureties  to  each  other's  securities,  534-539. 
creditor  not  entitled  to  benefit  of  security  furnished  by  another 

surety,  535. 
debtor  not  released  from  his  implied  contract  to  rei)ay  surety, 

636. 

597 


INDEX. 
Reference  is  to  Sections. 

SURETY  —  continued. 

surety's  right  of  subrogation  does  not  arise  till  he  has  paid  the 
debt,  537. 

is  subrogated  only  to  amount  he  has  paid,  538. 

misappropriation  of  security  by  one  surety,  539. 

cannot  require  pledgee  to  first  proceed  upon  collateral,  686. 

may  exact  diligence  of  pledgee  in  collecting  collateral,  711. 
SURPLUS,  proceeds  of  sale,  pledgor  entitled  to,  649. 
may  collect  by  suit  at  law,  650. 

acceptance  of  is  waiver  of  illegality  in  sale,  745. 
SYMBOLICAL    DELIVERY  sufficient,  36. 

by  delivery  of  document  of  title,  37. 

by  delivery  of  bill  of  lading,  228,  229. 
SYMBOL   OF   PROPERTY",  a  bill  of  lading  is  a,  227-232. 

delivery  of  bill  of  lading  transfers  the  property,  228. 

TENDER,  of  amount  of  debt  discharges  the  lien  of  the  pledge,  542. 

creditor  refusing  converts  pledge  to  his  own  use.  543. 
has  no  power  over  collateral  afterwards,  544. 

to  discharge  the  pledge,  must  be  absolute,  545. 

need  not  include  interest  if  none  contracted  for,  546. 

discharges  maker  of  accommodation  note,  547. 

upon  pledgee's  refusal  of,  a  conversion  occurs,  566. 

necessary  to  enable  pledgor  to  recover  securities,  570. 

need  not  be  formal  if  pledgor  substantially  offers  to  redeem,  572. 

debt  may  be  enforced  though  pledge  discharged  by  tender,  592. 

necessary  in  order  to  recover  value  of  stocks  illegally,  sold,  748, 
749. 
TENNESSEE,  decisions  respecting  transfer  of  stock,  212. 

pledgor's  interest  made  subject  to  attachment  and  execution,  389. 
TEXAS,  statute  regulating  transfer  of  stock,  213. 

pledgor's  interest  made  subject  to  execution,  390. 
TITLE,  of  the  pledgor,  52-65. 

impliedly  warranted  by  pledgor,  52. 

possession  not  conclusive  of,  54. 

pledgor  cannot  give  better  than  he  has,  55,  59,  60. 

possesion  of  negotiable  paper  presumptive  of,  57. 
TITLE   DEED,  pledge  of,  must  be  foreclosed  in  equity,  643. 
TRANSFER,  of  shares  of  stock  must  be  in  writing,  152. 

of  stock  absolute  in  form  may  be  shown  to  be  in  pledge,  154. 

what  constitutes  at  common  law,  158. 
598 


INDEX. 

Reference  is  to  Sections. 

TRANSFER—  continued. 

governed  by  general  principles  of  common  law,  159,  160. 
statutes  of  doubtful  meaning  relating  to  will  not  control,  160. 
unrestricted,  convenience  of,  161. 
unauthorized  by-law  restricting,  162. 
in  blank  warrants  genuineness  of  certificate,  167. 
By  delivery  of  certificate  as  between  the  parties,  168-171. 
title  passes  as  between  the  parties,  169,  170. 
some  courts  hold  that  only  equitable  title  passes,  171. 
JBy  delivery  as  hetiveen  the  parties  and  the  corporation,  172-176. 
not  entered  upon  the  books  does  not  bind  corporation,  172,  173. 
provision  for  recording  is  designed  for  safety  of  corporation,  174. 
record  necessary  to  confer  legal  title  as  against  corporation,  175. 
not  effectual  without  surrender  of  old  certificate,  176. 
By  delivery  as  hetiveen  parties  and  their  creditors,  177-220. 
whether  legal  as  well  as  equitable  title  passes,  177. 
sale  on  execution  against  registered  owner,  178. 
regulated  by  statute  in  many  states,  180-220. 
policy  that  should  govern,  220. 
Of  hills  of  lading,  how  made  in  pledge,  261-265. 
Of  warehouse  receipts,  how  made  in  pledge,  298-302. 
Of  shares  of  stoch,  when  involuntary,  does  not  change  title,  464. 
whether  negligence  in  owner  to  execute  in  blank,  465,  473. 
by  owner,  confers  indicia  of  ownership,  466,  467. 
whether  it  passes  legal  or  equitable  title,  468. 
TROVER.     See  Conversion. 

TRUSTEE,  holding  stock  cannot  pledge  for  his  own  debt,  474. 
stock  issued  to  "  the  estate  of"  a  deceased  person,  475. 
one  of  two  trustees  cannot  pledge  trust  property,  476. 
when  corporation  liable  for  permitting  transfer  by,  477. 
using  stock  to  secure  his  own  debt  with  knowledge  of  pledgee, 

478. 
pledging  stock  certificates  which  do  not  indicate  any  trust,  479. 
exceptional  rule  in  Maryland  and  California,  480. 
distinction  between  pledge  by  executor  and  pledge  by  trustee, 

481. 
of  insolvent  debtor,  has  like  power  of  disposal  as  executor,  484. 
other  persons  holding  fiduciary  relations  i)]edging  stock,  490. 
case  of  pledge  of  bonds  by  president  of  a  raih-oad,  491. 
TRUSTEE   PROCESS,  pledgor's  interest  not  generally  subject  to,  373. 
statute  in  Maine,  381. 

599 


INDEX. 
Reference  is  to  Sections. 

USAGE,  cannot  make  bills  of  lading  negotiable,  250. 

of  brokers  to  treat  certificate  of  stock  as  negotiable,  462. 

of  brokers  to  pledge  customer's  stock,  503, 723. 

of  bankers  to  sell  negotiable  notes  taken  as  collateral,  void,  651. 

cannot  authorize  broker  to  sell  stock  without  notice,  723. 
USE,  of  the  thing  pledged.     See  Pledgee. 
UTAH   TERRITORY,  statute  regulating  transfer  of  stock,  214. 

VENDEE,  in  possession  under  conditional  sale  cannot  pledge,  63. 
VENDOR,  in  possession  may  pledge,  62. 

lien  of,  upon  goods  pledged  by  delivery  of  warehouse  receipt,  306. 
VERMONT,  statute  regulating  transfer  of  stock,  215. 

pledgor's  interest  made  subject  to  attachment  and  execution,  391. 
VIRGINIA,  statute  regulating  transfer  of  stock,  216. 
VOTING,  upon  pledged  stock.     See  Stockholder. 

WAREHOUSE  RECEIPTS,  pledge  of  by  contract  to  deliver,  10. 
How  far  negotiable,  280-297. 

represent  the  property  mentioned,  280. 

not  technically  negotiable,  281. 

quasi  negotiability  of,  distinguished  from  complete  negotiability, 

282. 
in  some  states  declared  negotiable  by  statute,  283-295. 
though  negotiable  by  statute,  stand  in  lieu  of  property,  296. 
whether  evidence  of  ownership  or  pledge,  297. 
How  may  he  transferred,  293-302. 
need  not  be  in  a  particular  form,  298. 
though  not  to  order  or  bearer  may  be  pledged  by  delivery,  299. 

exceptional  rule  in  Massachusetts,  263,  300. 
to  bearer  may  be  transferred  without  indorsement,  301. 
acknowledgment  of  notice  of  transfer  of,  302. 
Rights  of  bond  fide  pledgee  of  303-313. 

transfer  to,  passes  title  as  effectually  as  actual  delivery  of  the 

goods,  303. 
when  possession  of  goods  obtained  by  pledgor  in  fraud,  304. 
possession  obtained  by  pledgee  in  good  faith,  305. 
pledgee  takes  title  superior  to  lien  of  vendor,  306. 
title  by  estoppel  of  pledgor,  308,  309,  310. 
warehouseman  estopped  to  deny  he  has  the  goods,  311. 

not  estopped  as  to  matters  not  within  his  knowledge,  312. 
nor  when  he  issues  a  receipt  by  mistake,  313. 
600 


INDEX. 

Reference  is  to  Sections. 

WAEEHOUSE  EECEIPTS  —  continued. 

Warehoicseman  must  have  goods  in  store,  314-320. 
statutory  provision  that  receipt  shall  not  be  issued  till  goods  are 

received,  314. 
for  goods  not  received  does  not  pass  title,  315. 
issued  by  agent  without  authority  not  binding,  316. 
for  part  of  goods  stored  in  bulk,  317. 

rule  applies  to  such  property  as  grain,  318. 
when  issued  for  more  than  is  in  store,  319. 
warehouseman  not  guarantor  of  title,  320. 
Owner  ccmnot  give  receipt  for  his  own  goods,  321-326. 
statutory  provisions  in  Nebraska  and  Kentucky,  322,  323. 
receipt  signed  by  agent  no  more  effect  than  his  own,  324. 
distinction  between  sales  and  pledges  as  regards  delivery,  326. 
WARRANTY,  of  title  by  pledgor  implied,  52,  330. 

of  genuineness  of  stock  certificate  implied  by  transfer,  167. 
WASHINGTON  TERRITORY,  statute  regulating  transfer  of  stock, 
217. 
pledgor  may  vote  upon  pledged  stock,  441. 
pledgee  of  stock  not  personally  liable  as  stockholder,  454. 
WEST  VIRGINIA,  statute  regulating  transfer  of  stock,  216. 
WISCONSIN,  statute  regulating  transfer  of  stock,  218. 

statute  relating  to  negotiability  of  warehouse  receipts  and  bills  of 

lading,  240. 
statute  relating  to  negotiability  of  warehouse  receipts,  295. 
factors'  act,  340. 

statute  making  pledgor's  interest  subject  to  execution,  392. 
pledgee  of  stock  not  personally  liable  as  stockholder,  455. 
WYOMING  TERRITORY,  statute  regulating  transfer  of  stock,  210. 
pledgor  may  vote  upon  pledged  stock,  441. 
pledgee  of  stock  not  personally  liable  as  stockholder,  456. 

601 


THIRD  EDITION,  REVISED  AND  ENLARGED. 


A   TREATISE 

OK   THE 

Law  of  Mortgages  of  Eeal  Property. 

By  Leonard  A.  Jones,  of  the  Boston  Bar.     In  two  volumes,  8vo,  860 
pages  each.     Price  in  law  sheep,  $13.00. 

The  present  revision  of  this  work  includes  the  decisions  upon  the  topics  treated 
which  have  been  reported  since  the  preparation  of  the  second  edition  down  to  the  be- 
ginning of  18S2.  The  number  of  new  cases  now  added  is  about  fifteen  hundred,  and 
the  additional  citations  about  twenty-five  hundred.  New  matter  has  been  incorporated 
into  the  text  of  every  chapter.  The  chapter  treating  of  the  Assumption  of  Mortgages 
has  received  the  largest  proportion  of  such  additions,  —  about  a  fourth  part  of  it  being 
new  matter,  in  which  the  results  of  many  important  decisions  are  stated. 

Much  labor  has  been  given  to  the  preparation  of  each  new  edition  of  this  work,  with 
the  view  of  making  it  in  every  way  more  complete  and  useful. 

The  Table  of  Cases  cited  in  the  first  edition  covered  seventy-seven  pages,  and  con- 
tained about  eight  thousand  different  eases.  In  the  second  edition  the  Table  of  Cases 
had  increased  to  eighty-seven  pages,  and  the  number  of  cases  to  about  nine  thousand. 
In  the  third  edition  the  Table  of  Cases  covers  more  than  a  hundred  pages,  and  the 
cases  cited  number  about  ten  thousand  five  hundred. 

The  extraordinar}'  demand  for  the  previous  editions  of  this  work  is  the  best  possible 
evidence  of  the  high  esteem  in  which  the  work  is  held  by  the  Profession.  Eminent 
judges  and  lawyers  have  expressed  highly  favorable  opinions  of  its  value,  and  it  has 
been  noticed  in  the  principal  legal  journals  with  marked  commendation. 


EXTRACTS   FROM  A  FEW  NOTICES    OF  PREVIOUS   EDITIONS. 

When  the  first  edition  of  this  work  appeared  we  gave  it  a  very  thorough  examina- 
tion, and  were  impressed  with  the  fact  that  it  was  very  greatly  superior  to  any  work 
before  published  upon  the  the  subject  of  Mortgages ;  that  it  was  e(iual  to  the  very  best 
productions  of  our  modern  legal  text-books.  The  year  and  a  half  which  has  tran- 
spired since  the  appearance  of  the  first  edition  has  brought  confirmation  from  both 
Bench  and  Bur  of  the  correctness  of  our  opinion  and  the  justness  of  our  commenda- 
tion. —  Western  Jurist. 

A  sound,  practical,  and  valuable  work.  The  special  features  of  merit  in  the  book 
are,  in  our  judgment,  first,  the  clear  and  unlabored  statement  of  principles  worked  out 
to  a  substantially  harmonious  development.  ...  In  the  second  phice,  no  incon- 
sideralile  part  of  the  subject  is  new.  In  this  portion  of  the  work  Mr.  Jones  has  shown 
a  sound  and  careful  judgment  in  stating  the  propositions,  and  discriminating  l)ctweeu 
the  adjudged  cases;  and  has  presented  a  clear  and  readable  text.  —  American  Law  lie- 
view. 

It  gives  me  pleasure  to  say  that  the  more  I  have  had  occasion  to  refer  to  it  the  bet- 
ter I  like  it,  and  I  am  certain  it  will  be  found  to  be  a  valuable  addition  to  the  law 
libraries  of  the  day.  —  M.  K.  Waite,  Chief  Justice  of  the  United  States. 

Very  high  authority. —  Court  of  Appeals  of  Virginia,  75  Va.  413. 

Valuable  work.  —  Supreme  Court  of  Alabama,  58  Ala.  22. 

A  work  which  seems  to  have  been  prepared  with  great  diligence  and  ability. — 
Appellate  Courts  of  Illinois,  5  Bradw.  5  (///.)  128. 

This  is  the  English  Fisher,  which  is  giving  as  high  praise  as  any  work  can  deserve 
—  Lavj  Times  (London),  Aug.  5,  1882. 

I  think  the  profession  are  to  be  congratulated  that  we  have  at  last  an  American 
work  on  niortjiages  prepared  with  coni|)ctent  ability  and  inlelligcncc,  luid  arranged 
with  so  much  thoughtful  method.  —  T.  M.  Cooley,  Chief  Justice  of  Michigan. 

*#*  For  sale  by  Booksellers.     Sent  by  mail,  post-paid,  on  receipt  of  price  by  the  Publishers, 

HOUGHTON,  MIFFLIN  AND  COMPANY,  Boston,  Mass. 


SECOND  EDITION  NOW  READY. 

JONES  ON  CHATTEL  MORTGAGES. 

A  Treatise  on  the  Law  of  Mortgages  of  Personal  Property,  by  Leonard 
A.  Jones,  Author  of  works  on  Mortgages  of  Real  Property  and  Rail- 
road Securities.  In  one  volume,  8vo,  uniform  with  the  Author's  other 
works.     Price,  in  law  sheep,  $6.50. 

This  work  has  been  revised  in  the  present  edition  by  incorporating  into  the  text  and 
notes  the  new  decisions  that  have  been  published  since  the  work  was  first  written,  as 
well  as  some  earlier  decisions  that  had  been  omitted.  The  book  has  thus  been  enlarged 
by  the  addition  of  some  sixty  pages  of  new  matter.  Most  of  this  has  been  wrought  into 
the  sections  as  they  were  originally  formed,  which  retain  the  same  numbers  ;  and  only  a 
few  wholly  new  sections  have  been  written  for  the  treatment  of  new  subjects.  The 
number  of  cases  cited  has  been  increased  by  about  three  hundred. — From  the  Preface 
to  the  Second  Edition. 

This  book  naturally  follows  the  author's  works  upon  Mortgages  of  Eeal  Property 
and  Railroad  Securities,  and  the  thorough  manner  in  which  these  works  were  done  led 
the  profession  to  wish  that  the  author  would  complete  the  consideration  of  the  subject 
of  mortgages  by  a  treatise  on  this,  which  is  perhaps  the  most  complicated  and  most  in 
need  of  explanation.  — New  Jersey  Law  Journal,  1881. 

This  book,  like  its  predecessor  in  the  series  on  property  securities  which  the  author 
has  in  hand,  is  a  model  in  all  that  makes  a  useful,  practical  book  of  reference  for  a 
busy  profession.  — American  Law  Review. 

Mr.  Jones's  treatise  on  the  Law  of  Mortgages  of  Personal  Property  is  characterized 
by  the  same  full  and  complete  treatment  which  he  has  given  his  previous  works.  — 
Transcript  (Boston). 

This  treatise  upon  the  Law  of  Chattel  Mortgages  is  by  the  author  of  the  work  on 
Mortgages  of  Real  Property,  which  we  have  heretofore  so  highly  commended,  and 
which  has  received  both  from  the  Bench  and  Bar  very  universal  approval.  .  .  .  Our 
examination  of  this  work  has  impressed  us  with  the  conviction  of  its  genuine  merit 
and  rightful  claim  to  rank  in  excellence  with  its  predecessor,  and  fit  associate  of  the 
same  author's  treatise  on  Mortgages  of  Real  Property.  —  Western  Jurist. 


JONES  ON  RAILROAD  SECURITIES. 

A  Treatise  on  the  Law  of  Railroad  and  Other  Corporate  Securities,  includ- 
ing Municipal  Aid  Bonds,  by  Leonard  A.  Jones,  author  of  "  A  Trea- 
tise on  Mortgages."  In  one  volume,  8vo,  750  pages.  Price,  in  law 
sheep,  $6.50. 

A  very  complete,  accurate,  and  useful  work.  It  exhausts  the  special  subjects  to 
which  it  is  devoted.  I  have  necessarily  had  to  become  somewhat  familiar  with  these 
subjects,  and  I  have  not  been  able  to  discover  a  single  reported  case  relating  to  them 
that  has  escaped  the  industry  and  research  of  the  learned  author.  —  Judge  Dillon. 

I  feel  assured  that  it  will  prove  of  great  benefit  to  the  profession  and  a  great  assist- 
ance to  the  Bench,  showing  as  it  does  the  same  industry,  research,  and  ability  as  the 
author's  earlier  work  on  Mortgages.  —  Hon.  William  B.  W ooos,  Judge  of  the  Su- 
preme Court  of  the  United  States. 

The  author  has  discovered  a  unique  field  of  legal  authorship,  and  has  admirably  cul- 
tivated it.  .  .  .  He  has  made  an  excellent  and  useful  work,  and  one  of  the  most  inter- 
esting that  has  lately  come  to  our  notice.  — Albany  Law  Journal. 

The  author  has  evidently  performed  his  work  with  great  care,  and  his  treatise  is  well 
worthy  to  appear  as  the  pioneer  text-book  in  this  branch  of  the  law.  —  Boston  Daily 
Advertiser. 

*^*  For  sale  by  all  Booksellers.  Sent  by  mail,  post-paid,  on  receipt  of  price  by  the 
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